UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q~~


FORM 10-Q
(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March ~~27, 2021~~

26, 2022


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-15943

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

06-1397316

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

251 Ballardvale Street

Wilmington

Massachusetts

01887

(Address of Principal Executive Offices)

(Zip Code)

(Registrant’s telephone number, including area code): (781) 222-6000


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	CRL	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April ~~23, 2021,~~22, 2022, there were ~~50,252,814~~50,804,860 shares of the Registrant’s common stock outstanding.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH ~~27, 2021~~26, 2022

TABLE OF CONTENTS

Item Page
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 27, 2021 and March 28, 2020
3
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 27, 2021 and March 28, 2020
4
Condensed Consolidated Balance Sheets (Unaudited) as of March 27, 2021 and December 26, 2020
5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 27, 2021 and March 28, 2020
6
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 27, 2021 and March 28, 2020
8
Notes to Unaudited Condensed Consolidated Financial Statements
9
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
3 Quantitative and Qualitative Disclosure About Market Risk
39
4 Controls and Procedures
40
PART II - OTHER INFORMATION
1 Legal Proceedings
41
1A Risk Factors
41
2 Unregistered Sales of Equity Securities and Use of Proceeds
42
6 Exhibits
44
Signatures
45


Item		Page
PART I - FINANCIAL INFORMATION
1	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	4
	Condensed Consolidated Balance Sheets (Unaudited) as of March 26, 2022 and December 25, 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	6
	Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 26, 2022 and March 27, 2021	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
3	Quantitative and Qualitative Disclosure About Market Risk	32
4	Controls and Procedures	33
PART II - OTHER INFORMATION
1	Legal Proceedings	34
1A	Risk Factors	34
2	Unregistered Sales of Equity Securities and Use of Proceeds	34

6	Exhibits	35

Signatures		36

Special Note on Factors Affecting Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and the future results of Charles River Laboratories International, Inc. that are based on our current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “likely,” “may,” “designed,” “would,” “future,” “can,” “could,” and other similar expressions which are predictions of, indicate future events and trends or which do not relate to historical matters, are intended to identify such forward-looking statements. These statements are based on our current expectations and beliefs and involve a number of risks, uncertainties and assumptions that are difficult to predict.

For example, we may use forward-looking statements when addressing topics such as: the COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, use of our borrowings, business practices, operations, suppliers, inventory and supplies, third party service providers, customers, employees, industry, ability to meet future performance obligations, ability to timely account for assets on our balance sheet, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on demand, the global economy and financial ~~markets; goodwill and asset impairments still under review;~~markets, changes and uncertainties in the global economy; client demand, particularly future demand for drug discovery and development products and services, including the outsourcing of these services; our expectations regarding stock repurchases, including the number of shares to be repurchased, expected timing and duration, the amount of capital that may be expended and the treatment of repurchased shares; our ability to successfully execute our business strategy; our ability to timely build infrastructure to satisfy capacity needs and support business growth, our ability to fund our operations for the foreseeable future, the impact of unauthorized access into our information systems, including the timing and effectiveness of any enhanced security and monitoring; present spending trends and other cost reduction activities by our clients; future actions by our management; the outcome of contingencies; changes in our business strategy, business practices and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; our strategic relationships with leading pharmaceutical and biotechnology companies, venture capital investments, and opportunities for future similar arrangements; our cost structure; the impact of ~~acquisitions;~~acquisitions and divestitures; our expectations with respect to revenue growth and operating synergies (including the impact of specific actions intended to cause related improvements); the impact of implementing newly issued accounting pronouncements; the impact of specific actions intended to improve overall operating efficiencies and profitability (and our ability to accommodate future demand with our infrastructure), including gains and losses attributable to businesses we plan to close, consolidate, divest or repurpose; changes in our expectations regarding future stock option, restricted stock, performance share units, and other equity grants to employees and directors; expectations with respect to foreign currency exchange; assessing (or changing our assessment of) our tax positions for financial statement purposes; and our liquidity. In addition, these statements include the impact of economic and market conditions on us and our ~~clients;~~clients, the effects of our cost saving actions and the steps to optimize returns to shareholders on an effective and timely basis; and our ability to withstand the current market conditions.

Forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, or in the case of statements incorporated by reference, on the date of the document incorporated by reference.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December ~~26, 2020,~~25, 2021, under the sections entitled “Our Strategy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in this Quarterly Report on Form 10-Q, under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” in our press releases, and other financial filings with the Securities and Exchange Commission. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or risks. New information, future events, or risks may cause the forward-looking events we discuss in this report not to occur.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

Three Months Ended
March 27, 2021 March 28, 2020
Service revenue $ 626,581 $ 546,592
Product revenue 197,985 160,467
Total revenue 824,566 707,059
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets) 423,975 372,824
Cost of products sold (excluding amortization of intangible assets) 92,313 82,174
Selling, general and administrative 155,733 129,901
Amortization of intangible assets 28,842 27,879
Operating income 123,703 94,281
Other income (expense):
Interest income 35 316
Interest expense (29,719) (15,067)
Other expense, net (27,717) (24,071)
Income from operations, before income taxes 66,302 55,459
Provision for income taxes 2,367 4,622
Net income 63,935 50,837
Less: Net income attributable to noncontrolling interests 2,405 68
Net income attributable to common shareholders $ 61,530 $ 50,769
Earnings per common share
Net income attributable to common shareholders:
Basic $ 1.23 $ 1.03
Diluted $ 1.20 $ 1.02
Weighted-average number of common shares outstanding:
Basic 49,980 49,189
Diluted 51,075 49,966
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Three Months Ended
		March 26, 2022		March 27, 2021
Service revenue		$	720,485	$	626,581
Product revenue		193,444		197,985
Total revenue		913,929		824,566
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)		486,864		423,975
Cost of products sold (excluding amortization of intangible assets)		90,247		92,313
Selling, general and administrative		150,033		155,733
Amortization of intangible assets		38,007		28,842
Operating income		148,778		123,703
Other income (expense):
Interest income		127		35
Interest expense		(9,434)		(29,719)
Other expense, net		(28,625)		(27,717)
Income before income taxes		110,846		66,302
Provision for income taxes		15,620		2,367
Net income		95,226		63,935
Less: Net income attributable to noncontrolling interests		2,204		2,405
Net income attributable to common shareholders		$	93,022	$	61,530

Earnings per common share
Net income attributable to common shareholders:
Basic		$	1.84	$	1.23
Diluted		$	1.81	$	1.20

Weighted-average number of common shares outstanding:
Basic		50,640		49,980
Diluted		51,325		51,075

See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three Months Ended
March 27, 2021 March 28, 2020
Net income $ 63,935 $ 50,837
Other comprehensive income (loss):
Foreign currency translation adjustment and other 9,829 (44,855)
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans 988 1,374
Comprehensive income, before income taxes 74,752 7,356
Less: Income tax benefit related to items of other comprehensive income (1,025) (2,039)
Comprehensive income, net of income taxes 75,777 9,395
Less: Comprehensive income (loss) related to noncontrolling interests, net of income taxes 2,390 (476)
Comprehensive income attributable to common shareholders, net of income taxes $ 73,387 $ 9,871
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Three Months Ended
		March 26, 2022		March 27, 2021
Net income		$	95,226	$	63,935
Other comprehensive income (loss):
Foreign currency translation adjustment		(12,952)		9,829
Amortization of net loss and prior service benefit included in net periodic cost for pension and other post-retirement benefit plans		746		988
Comprehensive income, before income taxes related to items of other comprehensive income		83,020		74,752
Less: Income tax benefit related to items of other comprehensive income		(2,018)		(1,025)
Comprehensive income, net of income taxes		85,038		75,777
Less: Comprehensive income related to noncontrolling interests, net of income taxes		2,209		2,390
Comprehensive income attributable to common shareholders, net of income taxes		$	82,829	$	73,387







See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

March 27, 2021 December 26, 2020
Assets
Current assets:
Cash and cash equivalents $ 465,411 $ 228,424
Trade receivables, net of allowances for doubtful accounts of $7,278 and $6,702, respectively 610,566 617,740
Inventories 193,584 185,695
Prepaid assets 81,726 96,712
Other current assets 71,922 72,560
Total current assets 1,423,209 1,201,131
Property, plant and equipment, net 1,117,003 1,124,358
Operating lease right-of-use assets, net 197,668 178,220
Goodwill 1,890,630 1,809,168
Client relationships, net 712,384 721,505
Other intangible assets, net 83,181 66,094
Deferred tax assets 35,457 37,729
Other assets 349,431 352,626
Total assets $ 5,808,963 $ 5,490,831
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases $ 2,932 $ 50,214
Accounts payable 127,129 122,475
Accrued compensation 164,748 206,823
Deferred revenue 213,032 207,942
Accrued liabilities 198,188 149,820
Other current liabilities 97,347 102,477
Total current liabilities 803,376 839,751
Long-term debt, net and finance leases 2,202,334 1,929,571
Operating lease right-of-use liabilities 173,015 155,595
Deferred tax liabilities 207,011 217,031
Other long-term liabilities 207,008 205,215
Total liabilities 3,592,744 3,347,163
Commitments and contingencies (Notes 2, 9, 11, 12, 16 and 17) 0 0
Redeemable noncontrolling interests 28,035 25,499
Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, $0.01 par value; 120,000 shares authorized; 50,350 shares issued and 50,216 shares outstanding as of March 27, 2021, and 49,767 shares issued and outstanding as of December 26, 2020 504 498
Additional paid-in capital 1,659,524 1,627,564
Retained earnings 686,944 625,414
Treasury stock, at cost, 134 and 0 shares, as of March 27, 2021 and December 26, 2020, respectively (36,028) 0
Accumulated other comprehensive loss (127,017) (138,874)
Total equity attributable to common shareholders 2,183,927 2,114,602
Noncontrolling interest 4,257 3,567
Total equity 2,188,184 2,118,169
Total liabilities, redeemable noncontrolling interests and equity $ 5,808,963 $ 5,490,831
See Notes to Unaudited Condensed Consolidated Financial Statements.


	March 26, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	241,869	$	241,214
Trade receivables and contract assets, net of allowances for credit losses of $6,154 and $7,180, respectively	697,843		642,881
Inventories	221,175		199,146
Prepaid assets	90,496		93,543
Other current assets	81,703		97,311
Total current assets	1,333,086		1,274,095
Property, plant and equipment, net	1,321,618		1,291,068
Operating lease right-of-use assets, net	304,758		292,941
Goodwill	2,695,994		2,711,881
Client relationships, net	948,830		981,398
Other intangible assets, net	70,707		79,794
Deferred tax assets	43,404		40,226
Other assets	356,652		352,889
Total assets	$	7,075,049	$	7,024,292
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases	$	2,642	$	2,795
Accounts payable	225,977		198,130
Accrued compensation	165,224		246,119
Deferred revenue	228,260		219,703
Accrued liabilities	227,203		228,797
Other current liabilities	144,533		137,641
Total current liabilities	993,839		1,033,185
Long-term debt, net and finance leases	2,676,165		2,663,564
Operating lease right-of-use liabilities	264,356		252,972
Deferred tax liabilities	230,949		239,720
Other long-term liabilities	239,015		242,859
Total liabilities	4,404,324		4,432,300
Commitments and contingencies (Notes 2, 9, 11 and 13)	0		0
Redeemable noncontrolling interests	55,819		53,010
Equity:
Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 120,000 shares authorized; 50,911 shares issued and 50,800 shares outstanding as of March 26, 2022, and 50,480 shares issued and outstanding as of December 25, 2021	509		505
Additional paid-in capital	1,744,829		1,718,304
Retained earnings	1,073,773		980,751
Treasury stock, at cost, 111 and 0 shares, as of March 26, 2022 and December 25, 2021, respectively	(33,994)		—
Accumulated other comprehensive loss	(174,933)		(164,740)
Total equity attributable to common shareholders	2,610,184		2,534,820
Noncontrolling interest	4,722		4,162
Total equity	2,614,906		2,538,982
Total liabilities, redeemable noncontrolling interests and equity	$	7,075,049	$	7,024,292
See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three Months Ended
March 27, 2021 March 28, 2020
Cash flows relating to operating activities
Net income $ 63,935 $ 50,837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 61,508 57,260
Stock-based compensation 13,189 10,960
Debt extinguishment and financing costs 26,907 0
Deferred income taxes (9,125) (2,973)
Loss on venture capital and strategic equity investments, net 16,719 12,035
Other, net 496 10,495
Changes in assets and liabilities:
Trade receivables, net 5,598 (32,136)
Inventories (11,404) 4,076
Accounts payable 9,622 (10,003)
Accrued compensation (37,360) (45,245)
Deferred revenue 5,006 6,065
Customer contract deposits (5,446) 4,454
Other assets and liabilities, net 30,584 2,765
Net cash provided by operating activities 170,229 68,590
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired (94,197) (382,250)
Capital expenditures (28,030) (25,721)
Purchases of investments and contributions to venture capital investments (16,550) (7,121)
Proceeds from sale of investments 0 2,504
Other, net 781 (1,097)
Net cash used in investing activities (137,996) (413,685)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility 1,954,011 1,409,793
Proceeds from exercises of stock options 19,612 22,608
Payments on long-term debt, revolving credit facility, and finance lease obligations (1,714,195) (925,109)
Purchase of treasury stock (36,028) (23,675)
Payment of debt extinguishment and financing costs (28,680) 0
Other, net 0 (4,405)
Net cash provided by financing activities 194,720 479,212
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 10,953 290
Net change in cash, cash equivalents, and restricted cash 237,906 134,407
Cash, cash equivalents, and restricted cash, beginning of period 233,119 240,046
Cash, cash equivalents, and restricted cash, end of period $ 471,025 $ 374,453
Supplemental cash flow information:
Cash and cash equivalents $ 465,411 $ 372,433
Restricted cash included in Other current assets 4,012 444
Restricted cash included in Other assets 1,602 1,576
Cash, cash equivalents, and restricted cash, end of period $ 471,025 $ 374,453
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Three Months Ended
	March 26, 2022		March 27, 2021
Cash flows relating to operating activities
Net income	$	95,226	$	63,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	75,299		61,508
Stock-based compensation	14,619		13,189
Loss on debt extinguishment and other financing costs	1,028		26,907
Deferred income taxes	(7,563)		(9,125)
Loss on venture capital and strategic equity investments, net	13,903		16,719
Contingent consideration, fair value changes	(3,450)		—
Other, net	5,211		496
Changes in assets and liabilities:
Trade receivables and contract assets, net	(57,942)		5,598
Inventories	(23,164)		(11,404)
Accounts payable	40,932		9,622
Accrued compensation	(79,795)		(37,360)
Deferred revenue	12,078		5,006
Customer contract deposits	4,750		(5,446)
Other assets and liabilities, net	11,498		30,584
Net cash provided by operating activities	102,630		170,229
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	—		(94,197)
Capital expenditures	(80,464)		(28,030)
Purchases of investments and contributions to venture capital investments	(13,296)		(16,550)
Proceeds from sale of investments	205		—
Other, net	(4,450)		781
Net cash used in investing activities	(98,005)		(137,996)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	962,005		1,954,011
Proceeds from exercises of stock options	12,199		19,612
Payments on long-term debt, revolving credit facility, and finance lease obligations	(948,267)		(1,714,195)
Purchase of treasury stock	(33,994)		(36,028)
Payment of debt extinguishment and financing costs	—		(28,680)
Other, net	(5,226)		—
Net cash (used in) provided by financing activities	(13,283)		194,720
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	5,740		10,953
Net change in cash, cash equivalents, and restricted cash	(2,918)		237,906
Cash, cash equivalents, and restricted cash, beginning of period	246,314		233,119
Cash, cash equivalents, and restricted cash, end of period	$	243,396	$	471,025

Supplemental cash flow information:
Cash and cash equivalents	$	241,869	$	465,411
Restricted cash included in Other current assets	413		4,012
Restricted cash included in Other assets	1,114		1,602
Cash, cash equivalents, and restricted cash, end of period	$	243,396	$	471,025

See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(in thousands)

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Attributable to Common Shareholders Noncontrolling Interest Total Equity
Shares Amount Shares Amount
December 26, 2020 49,767 $ 498 $ 1,627,564 $ 625,414 $ (138,874) 0 $ 0 $ 2,114,602 $ 3,567 $ 2,118,169
Net income — — — 61,530 — — — 61,530 690 62,220
Other comprehensive income — — — — 11,857 — — 11,857 — 11,857
Adjustment of redeemable noncontrolling interest to redemption value — — (835) — — — — (835) — (835)
Issuance of stock under employee compensation plans 583 6 19,606 — — — — 19,612 — 19,612
Acquisition of treasury shares — — — — — 134 (36,028) (36,028) — (36,028)
Stock-based compensation — — 13,189 — — — — 13,189 — 13,189
March 27, 2021 50,350 $ 504 $ 1,659,524 $ 686,944 $ (127,017) 134 $ (36,028) $ 2,183,927 $ 4,257 $ 2,188,184
Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Attributable to Common Shareholders Noncontrolling Interest Total Equity
Shares Amount Shares Amount
December 28, 2019 48,936 $ 489 $ 1,531,785 $ 280,329 $ (178,019) 0 $ 0 $ 1,634,584 $ 3,244 $ 1,637,828
Net income — — — 50,769 — — — 50,769 399 51,168
Other comprehensive loss — — — — (40,898) — — (40,898) — (40,898)
Buy-out and contingent consideration recognition in connection with redeemable noncontrolling interest — — (2,379) — — — — (2,379) — (2,379)
Issuance of stock under employee compensation plans 694 7 22,616 — — — — 22,623 — 22,623
Acquisition of treasury shares — — — — — 144 (23,675) (23,675) — (23,675)
Stock-based compensation — — 10,960 — — — — 10,960 — 10,960
March 28, 2020 49,630 $ 496 $ 1,562,982 $ 331,098 $ (218,917) 144 $ (23,675) $ 1,651,984 $ 3,643 $ 1,655,627
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Equity Attributable to Common Shareholders		Noncontrolling Interest		Total Equity
	Shares	Amount								Shares	Amount
December 25, 2021	50,480	$	505	$	1,718,304	$	980,751	$	(164,740)	—	$	—	$	2,534,820	$	4,162	$	2,538,982
Net income	—	—		—		93,022		—		—	—		93,022		560		93,582
Other comprehensive loss	—	—		—		—		(10,193)		—	—		(10,193)		—		(10,193)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,161)		—		—		—	—		(1,161)		—		(1,161)
Issuance of stock under employee compensation plans	431	4		13,067		—		—		—	—		13,071		—		13,071
Purchase of treasury shares	—	—		—		—		—		111	(33,994)		(33,994)		—		(33,994)
Stock-based compensation	—	—		14,619		—		—		—	—		14,619		—		14,619
March 26, 2022	50,911	$	509	$	1,744,829	$	1,073,773	$	(174,933)	111	$	(33,994)	$	2,610,184	$	4,722	$	2,614,906
















	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Equity Attributable to Common Shareholders		Noncontrolling Interest		Total Equity
	Shares	Amount								Shares	Amount
December 26, 2020	49,767	$	498	$	1,627,564	$	625,414	$	(138,874)	—	$	—	$	2,114,602	$	3,567	$	2,118,169
Net income	—	—		—		61,530		—		—	—		61,530		690		62,220
Other comprehensive income	—	—		—		—		11,857		—	—		11,857		—		11,857
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(835)		—		—		—	—		(835)		—		(835)
Issuance of stock under employee compensation plans	583	6		19,606		—		—		—	—		19,612		—		19,612
Purchase of treasury shares	—	—		—		—		—		134	(36,028)		(36,028)		—		(36,028)
Stock-based compensation	—	—		13,189		—		—		—	—		13,189		—		13,189
March 27, 2021	50,350	$	504	$	1,659,524	$	686,944	$	(127,017)	134	$	(36,028)	$	2,183,927	$	4,257	$	2,188,184













See Notes to Unaudited Condensed Consolidated Financial Statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Charles River Laboratories International, Inc. (the Company) in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal year ~~2020.~~2021. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

~~On March 11, 2020,~~Newly Issued Accounting Pronouncements

In November 2021, the ~~World Health Organization declared~~FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance.” ASU 2021-10 requires disclosures about transactions with a government that have been accounted for by a grant or contribution accounting model to increase transparency about the ~~outbreak~~types of ~~a strain of novel coronavirus disease, COVID-19, a global pandemic. The COVID-19 pandemic is dynamic,~~transactions, the accounting for the transactions, and its ultimate scope, duration and effects are uncertain. This pandemic has and continues to result in, and any future epidemic or pandemic crises may potentially result in, direct and indirect adverse effectsthe effect on the ~~Company’s industry~~financial statements. The ASU is an annual disclosure effective for fiscal years beginning after December 15, 2021 and ~~customers, which in turn has (with respect to COVID-19) and may (with respect to future epidemics or crises)~~will be applied on a prospective basis. The Company is currently evaluating the impact this new standard will have on the Company’s business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect the Company’s operating and financial results in a manner that is not presently known to the Company or that the Company currently does not expect to present significant risks to its operations or financial results. As of the date of issuance of these unaudited condensed consolidated financial statements ~~the Company is~~and related disclosures, but does not ~~aware~~believe there will be a material impact.

Summary of ~~any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value~~Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, “Description of ~~any assets or liabilities. These estimates may change, as new events occur~~Business and ~~additional information is obtained, and are recognized~~Summary of Significant Accounting Policies” in the ~~condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the~~ Company’s ~~condensed consolidated financial statements.~~Annual Report on Form 10-K for fiscal year 2021.

Consolidation

The Company’s unaudited condensed consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a controlling financial interest. For consolidated entities in which the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.

The Company’s fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. A 53rd week in the fourth quarter of the fiscal year is occasionally necessary to align with a December 31 calendar year-end, which will occur in this fiscal year 2022.

Segment Reporting

The Company reports its results in 3 reportable segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing ~~Support~~Solutions (Manufacturing). The Company’s RMS reportable segment includes the Research Models, Research Model Services, and Research ~~Products~~and GMP-Compliant Cells businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; ~~and~~ Insourcing Solutions (IS), which provides colony management of its clients’ research operations (including recruitment, training, staffing, and management services).; and Research ~~Products~~and GMP-Compliant Cells, which supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. The Company’s DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and ~~non-regulated~~nonregulated (GLP and non-GLP) safety assessment services. The Company’s Manufacturing reportable segment includes ~~Microbial Solutions, which provides~~ ~~in vitro~~ ~~(non-animal) lot-release testing products, microbial detection products, and species identification~~

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics ~~Testing Services~~Solutions (Biologics), which performs specialized testing of ~~biologics;~~biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.

~~Summary of Significant Accounting Policies~~

The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2020.

~~Newly Adopted Accounting Pronouncements~~

~~In January 2020, the~~ ~~Financial Accounting Standards Board (FASB) issue~~d ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” ASU 2020-01 states any equity security transitioning from the alternative method of accounting under Topic 321 to the equity method, or vice versa, due to an observable transaction will be remeasured immediately before the transition. In addition, the ASU clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles of Topic 321 before settlement or exercise. This standard became effective for the Company in the three months ended March 27, 2021 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This standard became effective for the Company in the three months ended March 27, 2021 and did not have a significant impact on the unaudited condensed consolidated financial statements and related disclosures.

~~Newly Issued Accounting Pronouncements~~

~~In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”~~ ~~The ASU, including subsequently issued updates, offers temp~~orary optional expedients and exceptions for applying U.S. GAAP to modifications to agreements such as loans, debt securities, derivatives, and borrowings which reference LIBOR or another reference rate that will partially discontinue after December 31, 2021 and fully cease by June 30, 2023. The expedients and exceptions provided by the standard do not apply to modifications made and hedging relationships entered into or evaluated after that, except for hedging relationships existing as of the phase-out date that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship. The ASU is effective until the replacement for LIBOR is completed. The interest rate on the Company’s revolving credit facility, ~~which was amended and restated in April 2021 (see Note 9. Long-term debt and finance lease obligations) matures in fiscal year 2026,~~ ~~is linked to LIBOR and alternative interest rates when LIBOR is discontinued.~~ The Company is currently evaluating the impact this new standard will have on the consolidated financial statements and related disclosures, but does not believe there will be a material impact upon adoption.

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

2. ~~BUSINESS COMBINATIONS~~ACQUISITIONS AND DIVESTITURES

~~Retrogenix Limited~~Fiscal 2022 Acquisition

On ~~March 30, 2021 (second fiscal quarter of 2021),~~April 5, 2022, the Company acquired ~~Retrogenix Limited (Retrogenix) for~~Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements the Company’s existing Insourcing Solutions business, specifically the CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The preliminary purchase price of Explora BioLabs was approximately ~~£35~~$295 million in cash, ~~(or approximately $48 million based on current exchange rates),~~ subject to customary closing adjustments. In addition to the initial purchase price, the transaction includes a potential additional payment of up to £5 million based on future performance (or approximately $7 million based on current exchange rates). Retrogenix is an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The acquisition was funded through ~~a combination of available cash and~~ proceeds from the Company’s ~~Credit Facility.~~credit facility (Credit Facility). This business will be reported as part of the Company’s ~~DSA reportable~~RMS segment. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed.

Fiscal 2021 Acquisitions

Vigene Biosciences, Inc.

On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The ~~Company incurred transaction~~acquisition enables clients to seamlessly conduct analytical testing, process development, and ~~integration costs in connection~~manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash. Included in the purchase price are contingent payments fair valued at $34.5 million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s Manufacturing reportable segment.

Retrogenix Limited

On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of ~~$0.8~~Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, ~~during~~net of $8.5 million in cash. Included in the ~~three months ended March 27, 2021,~~purchase price are contingent payments fair valued at $6.9 million, which ~~were included in Selling, general~~is the maximum potential payout, and ~~administrative expenses within~~was based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the ~~unaudited condensed consolidated statements~~Company’s Credit Facility. This business is reported as part of ~~income.~~the Company’s DSA reportable segment.

Cognate BioServices, Inc.

On March 29, 2021, ~~(second fiscal quarter of 2021),~~ the Company acquired Cognate BioServices, Inc. ~~(Cognate BioServices) for approximately $875 million in cash, subject to customary closing adjustments. Cognate BioServices is~~(Cognate), a cell and gene therapy ~~contract development and manufacturing organization (CDMO)~~CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate ~~BioServices~~ establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which was redeemed in April 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and ~~recently~~senior notes (Senior Notes) issued ~~Senior Notes.~~in fiscal 2021. This business ~~will be~~is reported as part of the Company’s Manufacturing reportable segment. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose either the preliminary allocation of the purchase price to assets acquired and liabilities assumed or the pro forma consolidated results of operations as if the Cognate BioServices acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments. The Company incurred transaction and integration costs in connection with the acquisition of $7.2 million during the three months ended March 27, 2021, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Distributed Bio, Inc.

On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The ~~preliminary~~ purchase price of Distributed Bio was $97.0 million, net of $0.8 million in ~~cash, subject to certain post-closing adjustments that may change the purchase price.~~cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously ~~invested~~issued by the Company during prior fiscal years, and ~~$14.0~~$14.1 million of contingent consideration, which iswas estimated using a Monte Carlo Simulation model (the maximum

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

~~The preliminary purchase price allocation of $97.0 million, net of $0.8 million of cash acquired was as follows:~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	~~December 31, 2020~~
	~~(in thousands)~~
~~Trade receivables~~	$	~~2,722~~
~~Other current assets (excluding cash)~~	~~221~~
~~Property, plant and equipment~~	~~2,382~~
~~Goodwill~~	~~71,585~~
~~Definite-lived intangible assets~~	~~24,540~~
~~Other long-term assets~~	~~2,055~~
~~Current liabilities~~	~~(2,823)~~
~~Deferred tax liabilities~~	~~(2,529)~~
~~Other long-term liabilities~~	~~(1,123)~~
~~Total purchase price allocation~~	$	~~97,030~~

The preliminary purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

~~The breakout of definite-lived intangible assets acquired was as follows:~~

Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 16,080 9
Developed technology 3,940 5
Other intangible assets 4,520 4
Total definite-lived intangible assets $ 24,540 7

~~The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced to~~ ~~Distributed Bio~~ ~~and the assembled workforce of the acquired business.~~ ~~The goodwill attributable to Distributed Bio is not deductible for tax purposes.~~

~~The Company incurred transaction and integration costs in connection with the acquisition of $0.7 million during the three months ended March 27, 2021, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.~~

~~Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because~~ ~~Distributed Bio's financial results are not significant when compared to the Company’s consolidated financial results.~~

~~Cellero, LLC~~

On August 6, 2020, the Company acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances the Company’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening the ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands the Company’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price for Cellero was $37.4 million in cash~~. The acquisition was funded through available cash. This business is reported as part of the Company’s RMS reportable segment.~~

~~The preliminary purchase price allocation of $36.9 million, net of $0.5 million of cash acquired was as follows:~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	~~August 6, 2020~~
	~~(in thousands)~~
~~Trade receivables~~	$	~~1,500~~
~~Inventories~~	~~551~~
~~Other current assets (excluding cash)~~	~~182~~
~~Property, plant and equipment~~	~~1,648~~
~~Goodwill~~	~~19,457~~
~~Definite-lived intangible assets~~	~~16,230~~
~~Other long-term assets~~	~~849~~
~~Current liabilities~~	~~(1,360)~~
~~Deferred tax liabilities~~	~~(1,467)~~
~~Other long-term liabilities~~	~~(740)~~
~~Total purchase price allocation~~	$	~~36,850~~

~~The~~ ~~preliminary p~~urchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. From the date of the acquisition through March 27, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

~~The breakout of definite-lived intangible assets acquired was as follows:~~

Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 14,740 13
Other intangible assets 1,490 3
Total definite-lived intangible assets $ 16,230 12

The goodwill resulting from the transaction, $10.8 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through Cellero and the assembled workforce of the acquired business.

The Company incurred integration costs in connection with the acquisition of $0.4 million for the three months ended March 27, 2021, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Cellero's financial results are not significant when compared to the Company’s consolidated financial results.

~~HemaCare Corporation~~

On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $379.8 million in cash. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility~~. This business is reported as part of the Company’s RMS reportable segment.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~The purchase price allocation of $376.7 million, net of $3.1 million of cash acquired was as follows:~~


	~~January 3, 2020~~
	~~(in thousands)~~
~~Trade receivables~~	$	~~6,451~~
~~Inventories~~	~~8,468~~
~~Other current assets (excluding cash)~~	~~3,494~~
~~Property, plant and equipment~~	~~10,033~~
~~Goodwill~~	~~210,196~~
~~Definite-lived intangible assets~~	~~183,540~~
~~Other long-term assets~~	~~5,920~~
~~Current liabilities~~	~~(5,188)~~
~~Deferred tax liabilities~~	~~(38,529)~~
~~Other long-term liabilities~~	~~(7,664)~~
~~Total purchase price allocation~~	$	~~376,721~~

From the date of the acquisition through December 26, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

~~The breakout of definite-lived intangible assets acquired was as follows:~~

Definite-Lived Intangible Assets Weighted Average Amortization Life
(in thousands) (in years)
Client relationships $ 170,390 19
Trade name 7,330 10
Other intangible assets 5,820 3
Total definite-lived intangible assets $ 183,540 18

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through HemaCare and the assembled workforce of the acquired business. The goodwill attributable to HemaCare is not deductible for tax purposes.

~~The Company incurred transaction and integration costs in connection with the acquisition of~~ ~~$0.1 million~~ and $5.7 million for the three months ended March 27, 2021 and March 28, 2020, respectively, which were primarily included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

~~The following selected unaudited pro forma consolidated results of operations are presented as if the HemaCare acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 30, 2018, after giving effect to certain adjustments. For the three months ended March 28, 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $0.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.~~

~~Three Months Ended~~

~~March 28, 2020~~

~~(in thousands)~~

~~(unaudited)~~

~~Revenue~~

~~707,077~~

~~Net income attributable to common shareholders~~

~~55,705~~

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

Other Acquisition

On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The ~~preliminary~~ purchase price was ~~$35.6~~$35.4 million, which includes ~~$19.7~~$19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), ~~subject to customary closing adjustments,~~ and $15.9 million of contingent consideration, which is

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment. ~~Pro forma~~

Purchase price information ~~and~~

The purchase price allocation was as follows:


	Vigene (3)		Retrogenix		Cognate		Distributed Bio
	June 28, 2021		March 30, 2021		March 29, 2021		December 31, 2020
	(in thousands)
Trade receivables	$	3,548	$	2,266	$	18,566	$	2,722
Other current assets (excluding cash)	1,657		209		14,128		221
Property, plant and equipment	7,649		400		52,082		2,382
Operating lease right-of-use asset, net	22,507		1,385		34,349		1,586
Goodwill (1)	239,681		34,489		611,555		71,585
Definite-lived intangible assets	93,900		22,126		270,900		24,540
Other long-term assets	694		—		6,098		469
Deferred revenue	(4,260)		(434)		(20,539)		(1,319)
Other current liabilities (2)	(6,319)		(1,141)		(45,388)		(1,504)
Operating lease right-of-use liabilities (Long-term)	(21,220)		(1,205)		(31,383)		(1,123)
Deferred tax liabilities	(13,958)		(4,174)		(32,503)		(2,529)

Total purchase price allocation	$	323,879	$	53,921	$	877,865	$	97,030

(1) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees. The goodwill attributable to these entities is not deductible for tax purposes.
(2) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. As of March 26, 2022, the Company estimates that it is reasonably possible that these recorded liabilities of $17 million may decrease over the next twelve month period as the Company seeks a favorable ruling from tax authorities on certain indirect tax positions.
(3) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The definite-lived intangible assets acquired were as follows:


	Vigene		Retrogenix		Cognate		Distributed Bio
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	87,500	$	17,340	$	257,200	$	16,080
Other intangible assets	6,400		4,786		13,700		8,460
Total definite-lived intangible assets	$	93,900	$	22,126	$	270,900	$	24,540

Weighted Average Amortization Life	(in years)
Client relationships	12		13		13		9
Other intangible assets	2		3		2		4
Total definite-lived intangible assets	11		11		13		7

The company incurred transaction and integration costs in connection with its acquisitions of $7.1 million and $8.7 million, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income for the three months ended March 26, 2022 and March 27, 2021, respectively.

Pro forma information

The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate and Vigene acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after giving effect to certain adjustments. For the three months ended March 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.2 million, additional interest expense on borrowing of $3.4 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. All other acquisitions have not been ~~presented~~included because ~~such~~that information is not material to the consolidated financial statements.


	Three Months Ended
	March 27, 2021
	(in thousands)
	(unaudited)
Revenue	$	858,800
Net income attributable to common shareholders	37,575

RMS Japan Divestiture

On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $73.1 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments.

The RMS Japan business was reported in the Company’s RMS reportable segment. The Company determined that the RMS Japan business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities.

CDMO Sweden Divestiture

On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a preliminary purchase price of $59.6 million, net of $0.2 million in cash and other post-closing adjustments that may impact the purchase price. Included in the purchase price are contingent payments fair valued at $15.3 million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10.0 million between the parties.

The CDMO Sweden business was acquired in March 2021 as part of the acquisition of Cognate and was reported in the Company’s Manufacturing reportable segment. The Company routinely evaluates the strategic fit and fundamental performance of our acquisitions integrated within our global infrastructure. As part of this assessment, the Company determined that this capital could be better deployed in other long-term growth opportunities.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The carrying amounts of the major classes of assets and liabilities associated with the divestitures of the businesses were as follows:


	October 12, 2021
	RMS Japan		CDMO Sweden
	(in thousands)
Assets
Current assets	$	26,524	$	8,187
Property, plant, and equipment, net	17,379		14,339
Operating lease right-of-use assets, net	—		19,733
Goodwill	4,129		27,764
Intangible assets, net	—		14,089
Other assets	3,695		—
Total assets	$	51,727	$	84,112

Liabilities
Current liabilities	$	8,705	$	6,386
Operating lease right-of-use liabilities	—		18,221
Long-term liabilities	94		—
Total liabilities	$	8,799	$	24,607

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by major business line and timing of transfer of products or services:


		Three Months Ended					Three Months Ended
		March 27, 2021		March 28, 2020				March 26, 2022		March 27, 2021
		(in thousands)					(in thousands)
Timing of Revenue Recognition:	Timing of Revenue Recognition:					Timing of Revenue Recognition:
RMS	RMS					RMS
Services and products transferred over time	Services and products transferred over time	$	64,896	$	60,041	Services and products transferred over time		$	69,924	$	64,896
Services and products transferred at a point in time	Services and products transferred at a point in time	112,014		85,955		Services and products transferred at a point in time		106,618		112,014
Total RMS revenue	Total RMS revenue	176,910		145,996		Total RMS revenue		176,542		176,910
DSA	DSA					DSA
Services and products transferred over time	Services and products transferred over time	500,468		438,564		Services and products transferred over time		542,336		500,468
Services and products transferred at a point in time	Services and products transferred at a point in time	710		119		Services and products transferred at a point in time		1,923		710
Total DSA revenue	Total DSA revenue	501,178		438,683		Total DSA revenue		544,259		501,178
Manufacturing	Manufacturing					Manufacturing
Services and products transferred over time	Services and products transferred over time	50,568		37,314		Services and products transferred over time		95,009		50,568
Services and products transferred at a point in time	Services and products transferred at a point in time	95,910		85,066		Services and products transferred at a point in time		98,119		95,910
Total Manufacturing revenue	Total Manufacturing revenue	146,478		122,380		Total Manufacturing revenue		193,128		146,478
Total revenue	Total revenue	$	824,566	$	707,059	Total revenue		$	913,929	$	824,566

RMS

The RMS business generates revenue through the commercial production and sale of research models, research ~~products,~~and GMP-compliant cells (cell supply), and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models and ~~products~~cell supply is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DSA

The ~~Discovery and Safety Assessment~~DSA business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. ~~Discovery and Safety Assessment~~DSA services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.

Manufacturing

The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics ~~Testing Services~~Solutions (Biologics), which performs specialized testing of ~~biologics;~~biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

Transaction Price Allocated to Future Performance Obligations

The Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March ~~27, 2021.~~26, 2022. Excluded from the disclosure is the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less ~~and~~ (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services ~~performed. The Company has assessed future performance obligations~~performed and (iii) service revenue recognized in accordance with ASC 842, “Leases” (see additional disclosure for Other Performance Obligations).

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~with respect to the COVID-19 pandemic uncertainties and believes there is an insignificant impact on the ability to meet future performance obligations and the amount of revenue to be recognize~~d.

The following table ~~includes~~includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March ~~27, 2021:~~26, 2022:

Revenue Expected to be Recognized in Future Periods
Less than 1 Year 1 to 3 Years 4 to 5 Years Beyond 5 Years Total
(in thousands)
DSA $ 212,919 $ 120,893 $ 4,404 $ 122 $ 338,338
Manufacturing 8,724 3,170 0 0 11,894
Total $ 221,643 $ 124,063 $ 4,404 $ 122 $ 350,232


	Revenue Expected to be Recognized in Future Periods
	Less than 1 Year		1 to 3 Years		4 to 5 Years		Beyond 5 Years		Total
	(in thousands)
DSA	$	404,549	$	414,174	$	36,670	$	1,752	$	857,145
Manufacturing	1,875		—		—		—		1,875
Total	$	406,424	$	414,174	$	36,670	$	1,752	$	859,020

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), and contract liabilities (current and long-term deferred revenue and customer contract deposits) on the unaudited condensed consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:

March 27, 2021 December 26, 2020
(in thousands)
Balances from contracts with customers:
Client receivables $ 463,800 $ 489,042
Contract assets (unbilled revenue) 154,044 135,400
Contract liabilities (current and long-term deferred revenue) 233,075 227,417
Contract liabilities (customer contract deposits) 36,652 42,244


	March 26, 2022		December 25, 2021
	(in thousands)
Balances from contracts with customers:
Client receivables	$	526,736	$	489,452
Contract assets (unbilled revenue)	177,261		160,609
Contract liabilities (current and long-term deferred revenue)	251,182		240,281
Contract liabilities (customer contract deposits)	63,985		59,512

When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately ~~$19~~$44 million and ~~$16~~$36 million of unpaid advanced client billings from both client receivables and deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, respectively. Advanced client payments of approximately ~~$37~~$64 million and ~~$42~~$60 million have been presented as customer contract deposits within other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, respectively.

Other changes in the contract asset and the contract liability balances during the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020~~27, 2021 were as follows:

(i) Changes due to ~~business combinations:~~acquisitions and divestitures:

See Note 2. ~~“Business Combinations”~~“Acquisitions and Divestitures” for the Company’s recent acquisitions.

(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:

During the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020,~~27, 2021, immaterial cumulative catch-up adjustments to revenue were recorded.

(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):

~~Approximatel~~yApproximately 60% of unbilled revenue as of December 25, 2021, which was $161 million, was billed during the three months ended March 26, 2022. Approximately 60% of unbilled revenue as of December 26, 2020, which was $135 million, was billed during the three months ended March 27, 2021. ~~Approximately 60% of unbilled revenue as of December 28, 2019, which was $122 million, was billed during~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~the three months ended March 28, 2020.~~

(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):

Approximately 65% of contract liabilities as of December 25, 2021, which was $240 million, were recognized as revenue during the three months ended March 26, 2022. Approximately 60% of contract liabilities as of December 26, 2020, which was $227 million, were recognized as revenue during the three months ended March 27, 2021. ~~Approximately 60%~~

Other Performance Obligations

As part of ~~contract liabilities as~~the Company’s service offerings, primarily in the Manufacturing segment, the Company has identified performance obligations related to leasing Company owned assets. In certain arrangements, customers obtain substantially all of ~~December 28, 2019,~~the economic benefits of the identified assets, which ~~was $193 million, were~~may include manufacturing suites and related equipment, and have the right to direct the assets’ use over the term of the contract. The associated revenue is recognized ~~as revenue during~~on a straight-line basis over the term of the lease, which is generally less than one year. For the three months ended March ~~28, 2020.~~26, 2022, the Company recognized lease revenue of $7.9 million, which is recorded within service revenue, which is transferred over time, within the unaudited condensed consolidated statements of income. Due to the nature of these arrangements and timing of the contractual lease term, the remaining revenue to be recognized related to these lease performance obligations is not material to the unaudited condensed consolidated financial statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. SEGMENT INFORMATION

~~The Company’s 3 reportable segments are RMS, DSA, and Manufacturing.~~ The following table presents revenue and other financial information by reportable segment:


		Three Months Ended						Three Months Ended
		March 27, 2021		March 28, 2020					March 26, 2022		March 27, 2021
		(in thousands)				(in thousands)
RMS	RMS						RMS
Revenue	Revenue	$	176,910	$	145,996		Revenue		$	176,542	$	176,910
Operating income	Operating income	44,935		27,373			Operating income		47,882		44,935
Depreciation and amortization	Depreciation and amortization	9,679		8,752			Depreciation and amortization		9,469		9,679
Capital expenditures	Capital expenditures	2,983		5,412			Capital expenditures		8,646		2,983
DSA	DSA						DSA
Revenue	Revenue	$	501,178	$	438,683		Revenue		$	544,259	$	501,178
Operating income	Operating income	90,949		72,283			Operating income		104,986		90,949
Depreciation and amortization	Depreciation and amortization	44,608		41,330			Depreciation and amortization		46,789		44,608
Capital expenditures	Capital expenditures	17,040		14,729			Capital expenditures		48,930		17,040
Manufacturing	Manufacturing						Manufacturing
Revenue	Revenue	$	146,478	$	122,380		Revenue		$	193,128	$	146,478
Operating income	Operating income	49,437		41,112			Operating income		46,368		49,437
Depreciation and amortization	Depreciation and amortization	6,569		6,366			Depreciation and amortization		18,482		6,569
Capital expenditures	Capital expenditures	7,110		5,161			Capital expenditures		22,828		7,110

~~Reconciliations~~The following tables present reconciliations of segment operating income, depreciation and amortization, and capital expenditures to the respective consolidated ~~amounts are as follows:~~amounts:


															Operating Income				Depreciation and Amortization				Capital Expenditures
															March 26, 2022		March 27, 2021		March 26, 2022		March 27, 2021		March 26, 2022		March 27, 2021
															(in thousands)

		Operating Income				Depreciation and Amortization				Capital Expenditures
		March 27, 2021		March 28, 2020		March 27, 2021		March 28, 2020		March 27, 2021		March 28, 2020
		(in thousands)
Three Months Ended:	Three Months Ended:													Three Months Ended:
Total reportable segments	Total reportable segments	$	185,321	$	140,768	$	60,856	$	56,448	$	27,133	$	25,302	Total reportable segments	$	199,236	$	185,321	$	74,740	$	60,856	$	80,404	$	27,133
Unallocated corporate	Unallocated corporate	(61,618)		(46,487)		652		812		897		419		Unallocated corporate	(50,458)		(61,618)		559		652		60		897
Total consolidated	Total consolidated	$	123,703	$	94,281	$	61,508	$	57,260	$	28,030	$	25,721	Total consolidated	$	148,778	$	123,703	$	75,299	$	61,508	$	80,464	$	28,030

Revenue for each significant product or service offering is as follows:


		Three Months Ended					Three Months Ended
		March 27, 2021		March 28, 2020				March 26, 2022		March 27, 2021
		(in thousands)					(in thousands)
RMS	RMS	$	176,910	$	145,996	RMS		$	176,542	$	176,910
DSA	DSA	501,178		438,683		DSA		544,259		501,178
Manufacturing	Manufacturing	146,478		122,380		Manufacturing		193,128		146,478
Total revenue	Total revenue	$	824,566	$	707,059	Total revenue		$	913,929	$	824,566

1715

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of unallocated corporate expense consists of the following:


		Three Months Ended					Three Months Ended
		March 27, 2021		March 28, 2020				March 26, 2022		March 27, 2021
		(in thousands)					(in thousands)
Stock-based compensation	Stock-based compensation	$	7,642	$	6,704	Stock-based compensation		$	8,503	$	7,642
Compensation, benefits, and other employee-related expenses	Compensation, benefits, and other employee-related expenses	27,362		21,980		Compensation, benefits, and other employee-related expenses		28,636		27,362
External consulting and other service expenses	External consulting and other service expenses	7,356		2,469		External consulting and other service expenses		4,319		7,356
Information technology	Information technology	4,095		3,716		Information technology		2,474		4,095
Depreciation	Depreciation	652		812		Depreciation		559		652
Acquisition and integration	Acquisition and integration	10,560		6,983		Acquisition and integration		5,826		10,560
Other general unallocated corporate	Other general unallocated corporate	3,951		3,823		Other general unallocated corporate		141		3,951
Total unallocated corporate expense	Total unallocated corporate expense	$	61,618	$	46,487	Total unallocated corporate expense		$	50,458	$	61,618

Other general unallocated corporate expense consists of costs associated with departments such as senior executives, corporate accounting, legal, tax, human resources, treasury, and investor relations.

Revenue by geographic area is as follows:


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Three Months Ended:
March 27, 2021	$	448,482	$	237,535	$	77,107	$	59,446	$	1,996	$	824,566
March 28, 2020	406,712		190,262		76,633		31,829		1,623		707,059

														U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
														(in thousands)

Three Months Ended:													Three Months Ended:
March 26, 2022													March 26, 2022	$	526,549	$	251,087	$	85,246	$	48,946	$	2,101	$	913,929
March 27, 2021													March 27, 2021	448,482		237,535		77,107		59,446		1,996		824,566

Included in the Other category above are operations located in Brazil and Israel. Revenue represents sales originating in entities physically located in the identified geographic area.

5. SUPPLEMENTAL BALANCE SHEET INFORMATION

The composition of trade receivables and contract assets, net is as follows:

March 27, 2021 December 26, 2020
(in thousands)
Client receivables $ 463,800 $ 489,042
Unbilled revenue 154,044 135,400
Total 617,844 624,442
Less: Allowance for doubtful accounts (7,278) (6,702)
Trade receivables, net $ 610,566 $ 617,740


	March 26, 2022		December 25, 2021
	(in thousands)
Client receivables	$	526,736	$	489,452
Unbilled revenue	177,261		160,609
Total	703,997		650,061
Less: Allowance for credit losses	(6,154)		(7,180)
Trade receivables and contract assets, net	$	697,843	$	642,881

The composition of inventories is as follows:

March 27, 2021 December 26, 2020
(in thousands)
Raw materials and supplies $ 26,726 $ 28,317
Work in process 32,619 36,755
Finished products 134,239 120,623
Inventories $ 193,584 $ 185,695

~~The composition of other current assets is as follows:~~

March 27, 2021 December 26, 2020
(in thousands)
Prepaid income tax $ 66,885 $ 68,462
Short-term investments 1,025 1,024
Restricted cash 4,012 3,074
Other current assets $ 71,922 $ 72,560


	March 26, 2022		December 25, 2021
	(in thousands)
Raw materials and supplies	$	34,763	$	33,118
Work in process	35,651		40,268
Finished products	150,761		125,760
Inventories	$	221,175	$	199,146

1816

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The composition of other current assets is as follows:


	March 26, 2022		December 25, 2021
	(in thousands)
Prepaid income tax	$	71,272	$	84,725
Short-term investments	1,065		1,063
Restricted cash	413		4,023
Other receivables	8,953		7,500
Other current assets	$	81,703	$	97,311

The composition of other assets is as follows:

March 27, 2021 December 26, 2020
(in thousands)
Venture capital investments $ 175,506 $ 197,100
Strategic equity investments 35,772 24,704
Life insurance policies 46,258 43,827
Other long-term income tax assets 22,827 23,485
Restricted cash 1,602 1,621
Long-term pension assets 33,435 31,915
Other 34,031 29,974
Other assets $ 349,431 $ 352,626


	March 26, 2022		December 25, 2021
	(in thousands)
Venture capital investments	$	137,689	$	149,640
Strategic equity investments	60,576		51,712
Life insurance policies	47,262		51,048
Other long-term income tax assets	18,195		18,690
Restricted cash	1,114		1,077
Long-term pension assets	39,626		39,582
Other	52,190		41,140
Other assets	$	356,652	$	352,889

The composition of other current liabilities is as follows:

March 27, 2021 December 26, 2020
(in thousands)
Current portion of operating lease right-of-use liabilities $ 25,868 $ 24,674
Accrued income taxes 24,952 24,884
Customer contract deposits 36,652 42,244
Other 9,875 10,675
Other current liabilities $ 97,347 $ 102,477


	March 26, 2022		December 25, 2021
	(in thousands)
Current portion of operating lease right-of-use liabilities	$	37,758	$	33,267
Accrued income taxes	29,838		26,161
Customer contract deposits	63,985		59,512
Other	12,952		18,701
Other current liabilities	$	144,533	$	137,641

The composition of other long-term liabilities is as follows:

March 27, 2021 December 26, 2020
(in thousands)
U.S. Transition Tax $ 48,781 $ 48,781
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plan 74,223 74,233
Long-term deferred revenue 20,043 19,475
Other 63,961 62,726
Other long-term liabilities $ 207,008 $ 205,215


	March 26, 2022		December 25, 2021
	(in thousands)
U.S. Transition Tax	$	43,057	$	43,057
Long-term pension liability, accrued executive supplemental life insurance retirement plan and deferred compensation plans	107,000		104,944
Long-term deferred revenue	22,922		20,578
Other	66,036		74,280
Other long-term liabilities	$	239,015	$	242,859

6. VENTURE CAPITAL AND STRATEGIC EQUITY INVESTMENTS

Venture capital investments were ~~$175.5~~$137.7 million and ~~$197.1~~$149.6 million as of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, respectively. The Company’s total commitment to the venture capital funds as of March ~~27, 2021~~26, 2022 was ~~$149.3~~$173.9 million, of which the Company funded ~~$99.7~~$116.6 million through that date. The Company received distributions totaling $1.3 million and $9.3 million for the three months ended March 26, 2022 and ~~$0.9~~March 27, 2021, respectively.

The Company recognized net losses on venture capital investments of $13.4 million for the three months ended March 26, 2022, driven by the decrease in the fair value of publicly-held investments offset by increases from private investments, and net losses of $16.4 million for the three months ended March 27, 2021, and March 28, 2020, respectively. The Company recognized net losses of $16.4 million and $12.2 million related to the venture capital investments for the three months ended March 27, 2021 and March 28, 2020, respectively, primarily driven by ~~decreases in fair value of~~both publicly-held and private investments.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also invests, with minority positions, directly in equity of predominantly privately-held companies. Strategic equity investments were ~~$35.8~~$60.6 million and ~~$24.7~~$51.7 million as of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, respectively. The Company purchased $10 million of an interest in a strategic equity investment for the three months ended March 26, 2022 and recognized insignificant gains and losses for the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020, respectively.~~27, 2021. Additionally, the Company has a $25 million commitment to purchase an additional interest in an existing strategic equity investment.

In April 2022, the Company acquired a 49% equity interest in a supplier supporting the DSA reportable segment (the Investee) for approximately $90 million up front and an additional future contingent payment of up to $5 million based upon the Investee’s future performance. Due to the limited time between the acquisition date and the filing of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of purchase price between the fair value of the investment and the proportional interest in the Investee’s underlying net assets.

7. FAIR VALUE

The Company has certain financial assets and liabilities recorded at fair value, which have been classified as Level 1, 2, or 3 within the fair value ~~hierarchy:~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

•~~Level 1 - Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access,~~

•~~Level 2 - Fair values are determined by utilizing quoted prices for identical or similar assets~~hierarchy. Assets and liabilities ~~in active markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates,~~

•~~Level 3 - Prices or valuations that require inputs that are both significant to the~~measured at fair value ~~measurement and unobservable.~~on a recurring basis are summarized below:

The fair value hierarchy level is determined by asset and class based on the lowest level of significant input. The observability of inputs may change for certain assets or liabilities. This condition could cause an asset or liability to be reclassified between levels.


	March 26, 2022
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	2,030	$	—	$	2,030
Other assets:
Life insurance policies	—		40,045		—		40,045
Total assets measured at fair value	$	—	$	42,075	$	—	$	42,075

Other current liabilities measured at fair value:
Contingent consideration	$	—	$	—	$	13,515	$	13,515
Other long-term liabilities measured at fair value:
Contingent consideration	—		—		16,644		16,644
Total liabilities measured at fair value	$	—	$	—	$	30,159	$	30,159

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During the three months ended March ~~27, 2021 and March 28, 2020,~~26, 2022, there were no transfers between levels.

~~Valuation methodologies used for assets and liabilities measured or disclosed at fair value are as follows:~~


	December 25, 2021
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	893	$	—	$	893
Other assets:
Life insurance policies	—		42,918		—		42,918
Total assets measured at fair value	$	—	$	43,811	$	—	$	43,811

Other current liabilities measured at fair value:
Contingent consideration	$	—	$	—	$	11,794	$	11,794
Other long-term liabilities measured at fair value:
Contingent consideration	—		—		25,450		25,450
Total liabilities measured at fair value	$	—	$	—	$	37,244	$	37,244

•~~Cash equivalents - Valued at market prices determined through third-party pricing services;~~

•~~Foreign currency forward contracts - Valued using market observable inputs, such as forward foreign exchange points and foreign exchanges rates;~~

•~~Life insurance policies - Valued at cash surrender value based on~~During the ~~fair value of underlying investments;~~

•Debt instruments - The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. The book values of the Company’s Senior Notes, which are fixed rate debt, are carried at amortized cost. Fair values of the Senior Notes are based on quoted market prices and on borrowing rates available to the Company; and

•~~Contingent consideration - Valued based on a probability weighting of the future cash flows associated with the potential outcomes.~~

~~Assets and liabilities measured at fair value on a recurring basis are summarized below:~~

March 27, 2021
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents $ 0 $ 6,172 $ 0 $ 6,172
Other assets:
Life insurance policies 0 38,250 0 38,250
Total assets measured at fair value $ 0 $ 44,422 $ 0 $ 44,422
Other liabilities measured at fair value:
Contingent consideration $ 0 $ 0 $ 33,163 $ 33,163
Total liabilities measured at fair value $ 0 $ 0 $ 33,163 $ 33,163

December 26, 2020
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents $ 0 $ 2,273 $ 0 $ 2,273
Other assets:
Life insurance policies 0 35,770 0 35,770
Total assets measured at fair value $ 0 $ 38,043 $ 0 $ 38,043
Other liabilities measured at fair value:
Contingent consideration $ 0 $ 0 $ 2,328 $ 2,328
Total liabilities measured at fair value $ 0 $ 0 $ 2,328 $ 2,328
year ended December 25, 2021, there were no transfers between levels.

2018

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to the Company’s ~~business combinations. See Note 2, “Business Combinations.”~~acquisitions.

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Beginning balance $ 2,328 $ 712
Additions 29,990 2,131
Fair value adjustments 917 0
Payments 0 (218)
Foreign currency (72) (62)
Ending balance $ 33,163 $ 2,563


	Three Months Ended
	March 26, 2022		March 27, 2021
	(in thousands)
Beginning balance	$	37,244	$	2,328
Additions	—		29,990
Payments	(3,301)		—
Total gains or losses (realized/unrealized):
Adjustment of previously recorded contingent liability	(3,450)		917
Foreign currency translation	(334)		(72)
Ending balance	$	30,159	$	33,163

The Company estimates the fair value of contingent consideration obligations through valuation models, such as probability-weighted and option pricing models, that incorporate probability adjusted assumptions and simulations related to the achievement of the milestones and the likelihood of making related payments. The unobservable inputs used in the fair value measurements include the probabilities of successful achievement of certain financial targets, forecasted results or targets, ~~volatilities,~~volatility, and discount ~~rates,~~rates. The remaining maximum potential payments are approximately $73 million, of which the value accrued as of March 26, 2022 is approximately $30 million. The weighted average probability of achieving the maximum target is approximately 42%. The average volatility and ~~risk-free rates.~~weighted average cost of capital are approximately 47% and 16%, respectively. Increases or decreases in these assumptions may result in a higher or lower fair value measurement, respectively.

Debt Instruments

The book value of the Company’s term and revolving loans, which are variable rate loans carried at amortized cost, approximates the fair value based on current market pricing of similar debt. As the fair value is based on significant other observable inputs, including current interest and foreign currency exchange rates, it is deemed to be Level 2 within the fair value hierarchy.

The book value of the Company’s Senior Notes are fixed rate obligations carried at amortized cost. Fair value is based on quoted market prices as well as borrowing rates available to the Company. As the fair value is based on significant other observable outputs, it is deemed to be Level 2 within the fair value hierarchy. The book value and fair value of the Company’s Senior Notes is summarized below:

March 27, 2021 December 26, 2020
Book Value Fair Value Book Value Fair Value
5.5% Senior Notes due 2026 $ 0 $ 0 $ 500,000 $ 523,100
4.25% Senior Notes due 2028 500,000 513,750 500,000 523,750
3.75% Senior Notes due 2029 500,000 501,250 0 0
4.0% Senior Notes due 2031 500,000 504,350 0 0


	March 26, 2022				December 25, 2021
	Book Value		Fair Value		Book Value		Fair Value
4.25% Senior Notes due 2028	$	500,000	$	483,100	$	500,000	$	521,250
3.75% Senior Notes due 2029	500,000		466,250		500,000		506,700
4.0% Senior Notes due 2031	500,000		466,850		500,000		507,500

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table provides a rollforward of the Company’s goodwill:

Adjustments to Goodwill
December 26, 2020 Acquisitions Foreign Exchange March 27, 2021
(in thousands)
RMS $ 287,759 $ 0 $ (169) $ 287,590
DSA 1,378,130 88,611 (7,726) 1,459,015
Manufacturing 143,279 0 746 144,025
Goodwill $ 1,809,168 $ 88,611 $ (7,149) $ 1,890,630

~~The increase in goodwill during the three months ended March 27, 2021 related primarily to the acquisition of Distributed Bio in the DSA reportable segment.~~


			Adjustments to Goodwill
	December 25, 2021		Acquisition Related		Foreign Exchange		March 26, 2022
	(in thousands)
RMS	$	283,524	$	—	$	(150)	$	283,374
DSA	1,472,506		—		(9,505)		1,463,001
Manufacturing	955,851		(592)		(5,640)		949,619
Goodwill	$	2,711,881	$	(592)	$	(15,295)	$	2,695,994

2119

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets, Net

The following table displays intangible assets, net by major class:

March 27, 2021 December 26, 2020
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
(in thousands)
Backlog $ 610 $ (152) $ 458 $ 29,233 $ (29,233) $ 0
Technology 133,667 (85,610) 48,057 130,907 (81,305) 49,602
Trademarks and trade names 12,231 (2,112) 10,119 15,870 (5,648) 10,222
Other 28,736 (4,189) 24,547 20,903 (14,633) 6,270
Other intangible assets 175,244 (92,063) 83,181 196,913 (130,819) 66,094
Client relationships 1,152,499 (440,115) 712,384 1,137,331 (415,826) 721,505
Intangible assets $ 1,327,743 $ (532,178) $ 795,565 $ 1,334,244 $ (546,645) $ 787,599


	March 26, 2022						December 25, 2021
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	(in thousands)
Backlog	$	12,513	$	(10,712)	$	1,801	$	12,577	$	(9,517)	$	3,060
Technology	134,544		(98,281)		36,263		135,764		(95,454)		40,310
Trademarks and trade names	13,018		(3,893)		9,125		13,086		(3,448)		9,638
Other	35,319		(11,801)		23,518		35,231		(8,445)		26,786
Other intangible assets	195,394		(124,687)		70,707		196,658		(116,864)		79,794
Client relationships	1,471,872		(523,042)		948,830		1,475,757		(494,359)		981,398
Intangible assets	$	1,667,266	$	(647,729)	$	1,019,537	$	1,672,415	$	(611,223)	$	1,061,192

The ~~increase~~decrease in intangible assets, net during the three months ended March ~~27, 2021~~26, 2022 related primarily to the ~~acquisition of Distributed Bio.~~normal amortization over the useful lives.

9. ~~LONG-TERM~~ DEBT AND ~~FINANCE LEASE OBLIGATIONS~~OTHER FINANCING ARRANGEMENTS

Long-term debt, net and finance leases consists of the following:

March 27, 2021 December 26, 2020
(in thousands)
Term loans $ 0 $ 146,875
Revolving facility 694,135 814,752
5.5% Senior Notes due 2026 0 500,000
4.25% Senior Notes due 2028 500,000 500,000
3.75% Senior Notes due 2029 500,000 0
4.0% Senior Notes due 2031 500,000 0
Other debt 369 3,457
Finance leases (Note 16) 28,844 29,047
Total debt and finance leases 2,223,348 1,994,131
Less:
Current portion of long-term debt 109 47,196
Current portion of finance leases (Note 16) 2,823 3,018
Current portion of long-term debt and finance leases 2,932 50,214
Long-term debt and finance leases 2,220,416 1,943,917
Debt discount and debt issuance costs (18,082) (14,346)
Long-term debt, net and finance leases $ 2,202,334 $ 1,929,571


	March 26, 2022		December 25, 2021
	(in thousands)

Revolving facility	$	1,174,169	$	1,161,431
4.25% Senior Notes due 2028	500,000		500,000
3.75% Senior Notes due 2029	500,000		500,000
4.00% Senior Notes due 2031	500,000		500,000
Other debt	366		368
Finance leases	25,955		27,223
Total debt and finance leases	2,700,490		2,689,022
Less:
Current portion of long-term debt	99		101
Current portion of finance leases	2,543		2,694
Current portion of long-term debt and finance leases	2,642		2,795
Long-term debt and finance leases	2,697,848		2,686,227
Debt discount and debt issuance costs	(21,683)		(22,663)
Long-term debt, net and finance leases	$	2,676,165	$	2,663,564

As of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, the weighted average interest rate on the Company’s debt was ~~3.09%~~2.87% and ~~3.11%~~2.78%, respectively.

~~Term Loans and Revolving Facility (Credit Facility)~~

~~As of and for the three months ended March 27, 2021,~~ the Company had a credit facility consisting of a $750 million term loan and a $2.05 billion multi-currency revolving facility. The term loan facility matured in 19 quarterly installments with the last installment due March 26, 2023. During the three months ended March 27, 2021, the Company prepaid the remaining amount of the term loan, or $146.9 million, with proceeds from an unregistered private offering (see 2029 and 2031 Senior Notes below). The revolving facility matured on March 26, 2023, and required no scheduled payment before that date. Approximately $0.2 million of deferred financing costs were expensed upon prepayment of the term loan.

The interest rates applicable to the term loan and revolving facility under the Credit Facility were, at the Company’s option, equal to either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~month adjusted LIBOR rate plus 1.0%) or the adjusted LIBOR rate, plus an interest rate margin based upon the Company’s leverage ratio.~~

In April 2021, the Company amended and restated the Credit Facility increasing the capacity of the revolving credit facility and extending the maturity date to April 2026, which requires no scheduled payment before that date. The amended and restated Credit Facility provides for a $3.0 billion multi-currency revolving facility. No additional term loan was borrowed. Certain amendments were made in connection with the prospective discontinuation of LIBOR and certain other changes in law since the execution of the Company’s existing credit agreement and makes certain other amendments to certain other covenants and terms.

The interest rates applicable to the amended and restated revolving facility are equal to (A) for revolving loans denominated in U.S. dollars, at the Company’s option, either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted LIBOR rate plus 1%) or the adjusted LIBOR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon the Company’s leverage ratio.

The Credit Facility includes certain customary representations and warranties, events of default, notices of material adverse changes to the Company’s business and negative and affirmative covenants. These covenants include (1) maintenance of a ratio of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) less capital expenditures to consolidated cash interest expense, for any period of four consecutive fiscal quarters, of no less than 3.50 to 1.0 as well as (2) maintenance of a ratio of consolidated indebtedness to consolidated EBITDA for any period of four consecutive fiscal quarters, of no more than 4.25 to 1.0. ~~As of March 27, 2021, the~~ ~~Company was compliant with all covenants under the Credit Agreement.~~

~~The obligations of the Company under the Credit Facility are collateralized by substantially all of the assets of the Company.~~

~~During the three months ended March 27, 2021 and March 28, 2020, the Company had multiple U.S. dollar denominated loans~~ ~~borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facilit~~y, which ranged from $300 million to $400 million each. This resulted in foreign currency losses recognized in Other income, net of $13.4 million and $4.2 million during the three months ended March 27, 2021 and March 28, 2020, respectively, related to the remeasurement of the underlying debt. The Company entered into foreign exchange forward contracts to limit its foreign currency exposures related to these borrowings and recognized gains of $14.0 million and $6.1 million during the three months ended March 27, 2021 and March 28, 2020, respectively, within Interest expense. As of March 27, 2021, the ~~Company did not have any outstanding borrowings in a currency different than its respective functional currency. See Note 14, “Foreign Currency Contracts”, for further discussion.~~

~~Base Indenture for Senior Notes~~

The Company enters into certain indentures in order to issue senior notes and is subject to certain affirmative and negative covenants. The Company has the following Senior Notes in the current and prior fiscal periods.

~~2026 Senior Notes~~

~~In fiscal year 2018, the Company issued~~ $500 million of ~~5.5%~~ Senior Notes due in 2026 (2026 Senior Notes) in an unregistered offering. Interest on the 2026 Senior Notes was payable semi-annually on April 1 and October 1. On March 23, 2021, the Company prepaid the $500 million 2026 Seniors Notes along with $21 million of related debt extinguishment costs and $13 million of accrued interest using proceeds from additional senior notes issued on the same ~~day (see 2029 and 2031 Senior Notes).~~day. The payment of the 2026 Senior Notes was accounted for as a debt extinguishment. Approximately $21 million of debt extinguishment costs and $5 million of deferred financing costs write-offs were recorded in Interest expense for the three months ended March 27, 2021.

~~2028 Senior Notes~~Cross currency loans

In fiscal year 2019, the Company issued $500 million of 4.25% Senior Notes due in 2028 (2028 Senior Notes) in an unregistered offering. Interest on the 2028 Senior Notes is payable semi-annually on May 1 and November 1.

~~2029 Senior Notes and 2031 Senior Notes~~

InDuring the three months ended March 26, 2022 and March 27, 2021, the Company ~~issued $1 billion split between $500~~had multiple U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility, which were approximately $400 million each. This resulted in foreign currency losses recognized in Other (expense) income, net of ~~3.75% Senior Notes due in 2029 (2029 Senior Notes),~~$11.1 million and ~~$500~~$13.4 million ~~of 4.00% Senior Notes due in 2031 (2031 Senior Notes), in an unregistered offering. Interest on~~during the ~~2029~~three months ended March 26, 2022 and ~~2031 Senior Notes is payable semi-annually on~~ March ~~15 and September 15. Approximately $10 million of deferred financing costs were capitalized as part of this debt issuance. Proceeds from~~27, 2021, respectively, related to the 2029 and 2031 Senior Notes were used as follows: prepay the $500 million 2026 Senior Notes, $21 million of debt extinguishment costs, and $13 million of accrued interest; prepay the $146.9 million remaining term loan; pay down $135 millionremeasurement of the ~~revolving facility; and pay for~~underlying debt. As of March 26, 2022, the Company did not have any outstanding borrowings in a ~~portion of~~currency different than its respective functional currency.

~~Principal Maturities~~Company’s Credit Facility. These

2320

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Principal maturities~~contracts are not designated as hedging instruments. This resulted in gains recognized within Interest expense of ~~existing debt, giving effect~~$11.8 million and $14.0 million during the three months ended March 26, 2022 and March 27, 2021, respectively, related to ~~the amended and restated Credit Agreement, for the periods set forth in the table below, are as follows:~~

these forward contracts. The Company had no open forward contracts related to a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency a
t March 26, 2022

Principal
(in thousands)
2021 (excluding the three months ended March 27, 2021) $ 109
2022 0
2023 0
2024 260
2025 0
Thereafter 2,194,135
Total $ 2,194,504

or December 25, 2021.

Letters of Credit

As of March ~~27, 2021~~26, 2022 and December ~~26, 2020,~~25, 2021, the Company had ~~$16.8~~$17.7 million ~~and $16.0 million, respectively,~~ in outstanding letters of credit.

10. EQUITY AND NONCONTROLLING INTERESTS

Earnings Per Share

The following table reconciles the numerator and denominator in the computations of basic and diluted earnings per share:


		Three Months Ended					Three Months Ended
		March 27, 2021		March 28, 2020				March 26, 2022		March 27, 2021
		(in thousands)					(in thousands)
Numerator:	Numerator:					Numerator:
Net income	Net income	$	63,935	$	50,837	Net income		$	95,226	$	63,935
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	2,405		68		Less: Net income attributable to noncontrolling interests		2,204		2,405
Net income attributable to common shareholders	Net income attributable to common shareholders	$	61,530	$	50,769	Net income attributable to common shareholders		$	93,022	$	61,530

Denominator:	Denominator:					Denominator:
Weighted-average shares outstanding - Basic	Weighted-average shares outstanding - Basic	49,980		49,189		Weighted-average shares outstanding - Basic		50,640		49,980
Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
Stock options, restricted stock units and performance share units	Stock options, restricted stock units and performance share units	1,095		777		Stock options, restricted stock units and performance share units		685		1,095
Weighted-average shares outstanding - Diluted	Weighted-average shares outstanding - Diluted	51,075		49,966		Weighted-average shares outstanding - Diluted		51,325		51,075

Options to purchase 0.2 million and less than 0.1 ~~million and 0.4~~ million shares for the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020,~~27, 2021, respectively, as well as a non-significant number of restricted stock units (RSUs) and performance share units (PSUs), were not included in computing diluted earnings per share because their inclusion would have been anti-dilutive. Basic weighted-average shares outstanding for ~~both~~ the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020~~27, 2021 excluded the impact of 0.4 million and 0.6 million shares, respectively, of non-vested RSUs and PSUs.

Treasury Shares

During the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020,~~27, 2021, the Company did 0tnot repurchase any shares under its authorized stock repurchase program. As of March ~~27, 2021,~~26, 2022, the Company had $129.1 million remaining on the authorized stock repurchase program.

The Company’s stock-based compensation plans permit the netting of common stock upon vesting of RSUs and PSUs in order to satisfy individual statutory tax withholding requirements. During the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020,~~27, 2021, the Company acquired 0.1 million shares for ~~$36.0~~$34.0 million and 0.1 million shares for ~~$23.7~~$36.0 million, respectively, from such netting.

~~Accumulated Other Comprehensive Income (Loss)~~

2421

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income (Loss)

Changes to each component of accumulated other comprehensive income (loss), net of income taxes, are as follows:

Foreign Currency Translation Adjustment
and Other Pension and Other Post-Retirement Benefit Plans Total
(in thousands)
December 26, 2020 $ (73,884) $ (64,990) $ (138,874)
Other comprehensive income before reclassifications 9,844 0 9,844
Amounts reclassified from accumulated other comprehensive income 0 988 988
Net current period other comprehensive income 9,844 988 10,832
Income tax (benefit) expense (1,270) 245 (1,025)
March 27, 2021 $ (62,770) $ (64,247) $ (127,017)


	Foreign Currency Translation Adjustment and Other		Pension and Other Post-Retirement Benefit Plans		Total
	(in thousands)
December 25, 2021	$	(98,173)	$	(66,567)	$	(164,740)
Other comprehensive loss before reclassifications	(12,957)		—		(12,957)
Amounts reclassified from accumulated other comprehensive income	—		746		746
Net current period other comprehensive (loss) income	(12,957)		746		(12,211)
Income tax (benefit) expense	(2,200)		182		(2,018)
March 26, 2022	$	(108,930)	$	(66,003)	$	(174,933)

Nonredeemable Noncontrolling Interest

The Company has an investment in an entity whose financial results are consolidated in the Company’s unaudited condensed consolidated financial statements, as it has the ability to exercise control over this entity. The interest of the noncontrolling party in this entity has been recorded as noncontrolling interest within Equity in the accompanying unaudited condensed consolidated balance sheets. The activity within the nonredeemable noncontrolling interest was not significant during the three months ended March ~~27, 2021~~26, 2022 and March ~~28, 2020.~~27, 2021.

Redeemable Noncontrolling Interests

The Company has a 92% equity interest in Vital River with an 8% redeemable noncontrolling interest. The Company has the right to purchase, and the noncontrolling interest holders have the right to sell, the remaining 8% equity interest at a contractually defined redemption value, subject to a redemption floor, which represents a derivative embedded within the equity instrument. ~~These rights are exercisable beginning in 2022 and are accelerated in certain events.~~ The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value ($~~18.7~~24.3 million as of March ~~27, 2021)~~26, 2022) and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 8% interest, the noncontrolling interest is classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining 8% equity interest is not limited.

~~As part of the Citoxlab acquisition in 2019, the~~The Company ~~acquired~~has an ~~approximate 90%~~80% equity interest in a subsidiary that was fully consolidated under the voting interest model, which included an approximate 10% redeemable noncontrolling interest. In February 2020, the Company purchased the remaining approximate 10% noncontrolling interest for approximately $4 million and assumption of a contingent consideration liability payable to the former shareholders. See Note 7. “Fair Value”.

~~In 2019, the Company acquired an 80% equity interest that is fully consolidated under the voting interest model, which includes~~with a 20% redeemable noncontrolling interest. ~~The~~In August 2022, the Company ~~has~~will have the right to purchase, and the noncontrolling interest holders have the right to sell (Put/call option), the remaining 20% equity interest at its appraised ~~value. These rights are exercisable beginning in 2022.~~value ($31.5 million as of March 26, 2022). The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the appraised value and the carrying amount adjusted for net income (loss) attributable to the noncontrolling interest or a predetermined floor value. As the noncontrolling interest holders have the ability to require the Company to purchase the remaining 20% interest, the noncontrolling interest is classified in the mezzanine section of the unaudited condensed consolidated balance sheets, which is presented above the equity section and below liabilities. The amount that the Company could be required to pay to purchase the remaining 20% equity interest is not limited.

The following table provides a rollforward of the activity related to the Company’s redeemable noncontrolling interests:


	Three Months Ended
	March 26, 2022		March 27, 2021
	(in thousands)
Beginning balance	$	53,010	$	25,499
Adjustment of noncontrolling interest to redemption value	1,161		835
Net income attributable to noncontrolling interests	1,644		1,716
Foreign currency translation	4		(15)
Ending balance	$	55,819	$	28,035

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~The following table provides a rollforward of the activity related to the Company’s redeemable noncontrolling interests:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Beginning balance $ 25,499 $ 28,647
Adjustment to Vital River redemption value 835 0
Purchase of a 10% redeemable noncontrolling interest 0 (3,732)
Net income (loss) attributable to noncontrolling interests 1,716 (332)
Foreign currency translation (15) (544)
Ending balance $ 28,035 $ 24,039

11. INCOME TAXES

The Company’s effective tax rates for the three months ended March ~~27, 2021~~26, 2022 and ~~March 28, 2020 were 3.6% and 8.3%, respectively. For the three months ended~~ March 27, 2021 were 14.1% and 3.6%, respectively. The increase in the ~~decrease~~effective tax rate from the prior year period was primarily attributable to ~~increased~~a decreased tax benefit from stock-based compensation deductions in the ~~first quarter of 2021 compared to the corresponding period in 2020.~~three months ended March 26, 2022.

For the three months ended March ~~27, 2021,~~26, 2022, the Company’s unrecognized tax benefits increased by ~~$0.3~~$1.6 million to ~~$25.3~~$34.2 million, primarily due to ~~an additional quarter~~increases in research & development tax credit reserves. For the three months ended March 26, 2022, the amount of ~~Canadian Scientific Research and Experimental Development Credit Reserves, state~~unrecognized income tax ~~positions, and unfavorable foreign exchange, partially offset~~benefits that would impact the effective tax rate increased by ~~decreases due~~$1.1 million to ~~dispositions.~~$31.1 million for the same reasons discussed above. The accrued interest on unrecognized tax benefits was ~~$2.4~~$1.7 million atas of March ~~27, 2021~~.26, 2022. The Company estimates that it is reasonably possible that the unrecognized tax benefits will decrease by approximately ~~$1.0~~$11.3 million over the next twelve-month period, primarily due to audit settlements and expiring statutes of limitations.

The Company conducts business in a number of tax jurisdictions. As a result, it is subject to tax audits on a regular basis including, but not limited to, such major jurisdictions as the U.S., the U.K., China, France, Germany, and Canada. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before ~~2017.~~2018.

The Company and certain of its subsidiaries have ongoing tax controversies in the U.S., Canada, France, ~~China, Germany, India,~~the Netherlands, and ~~Canada.~~India. The Company does not anticipate resolution of these audits will have a material impact on its consolidated financial statements.

12. ~~PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS~~

~~The following table provides the components of net periodic cost for the Company’s pension, deferred compensation and executive supplemental life insurance retirement plans:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Service cost $ 911 $ 797
Interest cost 1,344 2,355
Expected return on plan assets (1,983) (2,981)
Amortization of prior service cost (credit) (128) (125)
Amortization of net loss 1,110 1,586
Other adjustments 0 125
Net periodic cost $ 1,254 $ 1,757

Service cost is recorded as an operating expense within the accompanying unaudited condensed consolidated statements of income. All other components of net periodic costs are recorded in Other expense, net in the accompanying unaudited condensed consolidated statements of income. The net periodic cost for the Company’s other post-retirement benefit plan for the ~~three months ended March 27, 2021 and March 28, 2020~~ ~~was 0t significant.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~13. STOCK-BASED COMPENSATION~~

~~The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, RSUs, and PSUs.~~

~~The following table provides stock-based compensation by the financial statement line item in which it is reflected:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Cost of revenue $ 2,713 $ 2,035
Selling, general and administrative 10,476 8,925
Stock-based compensation, before income taxes 13,189 10,960
Provision for income taxes (1,987) (1,551)
Stock-based compensation, net of income taxes $ 11,202 $ 9,409

~~During the three months ended March 27, 2021, the Company granted an insignificant amount of stock options and RSUs.~~

~~14. FOREIGN CURRENCY CONTRACTS~~

~~Cross currency loans~~

The Company periodically enters into foreign exchange forward contracts to limit its foreign currency exposure related to U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Company’s Credit Facility. These contracts are not designated as hedging instruments. Any gains or losses on these forward contracts are recognized immediately within Interest expense in the unaudited condensed consolidated statements of income.

~~The Company had no open forward contracts related to a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency at March 27, 2021~~ ~~or December 26, 2020.~~

The following table summarizes the effect of the foreign exchange forward contracts entered into to limit the Company’s foreign currency exposure related to U.S. dollar denominated loans borrowed by a non-U.S. Euro functional currency entity under the Credit Facility on the Company’s unaudited condensed consolidated statements of income:

March 27, 2021 March 28, 2020
Location of gain (loss) Financial statement caption amount Amount of gain (loss) Financial statement caption amount Amount of gain (loss)
(in thousands)
Three Months Ended:
Interest expense $ (29,719) $ 13,977 $ (15,067) $ 6,067

~~Intercompany loans~~

The Company periodically enters into foreign exchange forward contracts to limit its foreign currency exposure related to certain intercompany loans. These contracts are not designated as hedging instruments. Any gains or losses on forward contracts associated with intercompany loans are recognized immediately in Other income (expense), net and are largely offset by the remeasurement of the underlying intercompany loans.

The Company did not enter into foreign currency forward contracts related to certain intercompany loans during 2021 and 2020. The Company settled one foreign currency forward contract related to certain intercompany loans in 2020, and recognized an immaterial loss during the three months ended March 28, 2020 recognized in Other expense, net.

~~15.~~ RESTRUCTURING AND ASSET IMPAIRMENTS

~~Global Restructuring Initiatives~~

In recent fiscal years, the Company has undertaken productivity improvement initiatives within all reportable segments at various locations across the U.S., Canada, Europe, and China. This includes workforce right-sizing and scalability initiatives, resulting in severance and transition costs; and cost related to the consolidation of facilities, resulting in asset impairment and accelerated depreciation charges.

The Company does not have any significant remaining lease obligations for facilities associated with restructuring activities. The following table presents a summary of restructuring costs related to these initiatives within the unaudited condensed consolidated statements of ~~income.~~income:

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Three Months Ended
March 27, 2021 March 28, 2020
Severance and Transition Costs Asset Impairments and Other Costs Total Severance and Transition Costs Asset Impairments and Other Costs Total
(in thousands)
Cost of services provided and products sold (excluding amortization of intangible assets) $ 523 $ 40 $ 563 $ 247 $ 229 $ 476
Selling, general and administrative 39 147 186 83 0 83
Total $ 562 $ 187 $ 749 $ 330 $ 229 $ 559

~~The following table presents restructuring costs by reportable segment for these productivity improvement initiatives:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
RMS $ 7 $ 220
DSA 559 83
Manufacturing 334 256
Unallocated corporate (151) 0
Total $ 749 $ 559

~~Rollforward of restructuring activities~~

~~The following table provides a rollforward for all of the Company’s severance and transition costs and certain lease related costs related to all restructuring activities:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Beginning balance $ 5,816 $ 6,406
Expense (excluding non-cash charges) 749 517
Payments / utilization (2,465) (4,243)
Other non-cash adjustments (1,831) 0
Foreign currency adjustments (48) (149)
Ending balance $ 2,221 $ 2,531


	Three Months Ended
	March 26, 2022		March 27, 2021
	(in Thousands)
Restructuring Costs:
RMS	$	674	$	7
DSA	143		559
Manufacturing	107		334
Unallocated corporate	1,087		(151)
Total	$	2,011	$	749

As of March 26, 2022 and March 27, 2021, ~~and March 28, 2020, $2.2~~$4.2 million and ~~$2.4~~$2.2 million, respectively, of severance and other personnel related costs liabilities and lease obligation liabilities were included in accrued compensation and accrued liabilities within the Company’s unaudited condensed consolidated balance sheets. ~~As of March 28, 2020, $0.1 million, were included in other long-term liabilities within the Company’s unaudited condensed consolidated balance sheets.~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~16. LEASES~~

~~Operating and Finance Leases~~

~~Right-of-use lease assets and lease liabilities are reported in the Company’s unaudited condensed consolidated balance sheets as follows:~~

March 27, 2021 December 26, 2020
(in thousands)
Operating leases
Operating lease right-of-use assets, net $ 197,668 $ 178,220
Other current liabilities $ 25,868 $ 24,674
Operating lease right-of-use liabilities 173,015 155,595
Total operating lease liabilities $ 198,883 $ 180,269
Finance leases
Property, plant and equipment, net $ 31,437 $ 31,614
Current portion of long-term debt and finance leases $ 2,823 $ 3,018
Long-term debt, net and finance leases 26,021 26,029
Total finance lease liabilities $ 28,844 $ 29,047

~~The components of operating and finance lease costs were as follows:~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Operating lease costs $ 9,352 $ 8,077
Finance lease costs:
Amortization of right-of-use assets 848 951
Interest on lease liabilities 328 340
Short-term lease costs 950 589
Variable lease costs 883 1,045
Sublease income (374) (586)
Total lease costs $ 11,987 $ 10,416

~~Other information related to leases was as follows:~~

~~Supplemental cash flow information~~

Three Months Ended
March 27, 2021 March 28, 2020
(in thousands)
Cash flows included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 8,503 $ 6,974
Operating cash flows from finance leases 328 340
Finance cash flows from finance leases 942 1,572
Non-cash leases activity:
Right-of-use lease assets obtained in exchange for new operating lease liabilities $ 25,968 $ 25,407
Right-of-use lease assets obtained in exchange for new finance lease liabilities 86 593

~~Lease term and discount rate~~

~~CHARLES RIVER LABORATORIES INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

As of As of
March 27, 2021 March 28, 2020
Weighted-average remaining lease term (in years)
Operating lease 8.7 8.4
Finance lease 12.4 12.7
Weighted-average discount rate
Operating lease 3.9 % 4.2 %
Finance lease 4.5 % 4.5 %

At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, the Company’s incremental borrowing rate is used as the discount rate, which is based on the information available at the lease commencement date and represents a rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

~~As of March 27, 2021, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:~~

Operating Leases Finance Leases
(in thousands)
2021 (excluding the three months ended March 27, 2021) $ 24,996 $ 3,078
2022 30,659 3,738
2023 28,248 3,411
2024 27,113 3,181
2025 24,635 2,902
Thereafter 101,665 21,597
Total minimum future lease payments 237,316 37,907
Less: Imputed interest 38,433 9,063
Total lease liabilities $ 198,883 $ 28,844

Total minimum future lease payments (predominantly operating leases) of approximately $108 million for leases that have not commenced as of March 27, 2021, as the Company does not yet control the underlying assets, are not included in the unaudited condensed consolidated financial statements. These leases are expected to commence between fiscal years 2021 and 2024 with lease terms of approximately 8 to 15 years.

~~17.~~13. COMMITMENTS AND CONTINGENCIES

Litigation

Various lawsuits, claims and proceedings of a nature considered normal to its business are pending against the Company. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on the Company’s business or financial condition.

3023

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for fiscal year ~~2020.~~2021. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in Item 1A, “Risk Factors” included elsewhere within this Form 10-Q. Certain percentage changes may not recalculate due to rounding.

Overview

We are a full service, ~~early-stage~~non-clinical contract research organization (CRO). ~~For over 70 years, we have been in the business of providing the research models required in research and development of new drugs, devices, and therapies. Over this time, we~~We have built upon our original core competency of laboratory animal medicine and science (research model technologies) to develop a diverse portfolio of discovery and safety assessment services, both Good Laboratory Practice (GLP) and non-GLP, ~~that enable us~~which is able to support our clients from target identification through non-clinical development. We also provide a suite of products and services to support our clients’ manufacturing ~~activities.~~activities, including our recently acquired contract development and manufacturing organization (CDMO) business. Utilizing our broad portfolio of products and services enables our clients to create a more flexible drug development model, which reduces their costs, enhances their productivity and effectiveness, and increases speed to market.

Our client base includes ~~all~~ major global biopharmaceutical companies, many biotechnology ~~companies, CROs,~~companies; agricultural and industrial chemical, ~~companies,~~ life science, ~~companies,~~ veterinary medicine, ~~companies,~~medical device, diagnostic and consumer product companies; contract research and contract manufacturing ~~companies, medical device companies, and diagnostic~~organizations; and other commercial entities, as well as leading hospitals, academic institutions, and government agencies around the world.

Segment Reporting

Our three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing ~~Support~~Solutions (Manufacturing). Our RMS reportable segment includes the Research Models, Research Model Services, and Research ~~Products~~and GMP-Compliant Cells businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; and Insourcing Solutions (IS), which provides colony management of our clients’ research operations (including recruitment, training, staffing, and management services). Research ~~Products~~and GMP-Compliant Cells supplies controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood, bone marrow, and cord blood. Our DSA reportable segment includes services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and non-regulated (GLP and non-GLP) safety assessment services. Our Manufacturing reportable segment includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics ~~Testing Services~~Solutions (Biologics), which performs specialized testing of ~~biologics;~~biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO); and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens.

~~COVID-19~~Russia-Ukraine Conflict

~~On March 11, 2020,~~In February 2022, the ~~World Health Organization declared~~Russian Federation launched an invasion of the ~~outbreak~~country of Ukraine resulting in conflict in the region and a ~~strain~~variety of ~~novel coronavirus disease, COVID-19, a global pandemic.~~sanctions against the Russian Federation enacted by several governments, including the U.S, United Kingdom, Canada and European Union. The ~~COVID-19 pandemic is dynamic, and its ultimate scope, duration and effects are uncertain. This pandemic~~conflict has had and ~~may continue~~continues to ~~result in~~have, direct and indirect adverse effects on financial markets and global supply chain disruptions. We do not have any direct operations in either Russia or Ukraine and there were no material impacts to our ~~industry and customers, which in turn has impacted our business, results~~financial statements for the three months ended March 26, 2022 as a result of ~~operations, and financial condition. Further,~~ the ~~COVID-19 pandemic may also affect~~situation. We will continue to monitor the situation as it evolves for potential impacts to our operating and financial results such as increased inflationary, supply chain, or cybersecurity risks in ways that are and are not presently known to us, or that we currently do not expect to present significant risks to our operations or financial results but which may in fact turn out to negatively affect us to a magnitude greater than anticipated.subsequent periods. Refer to Item 1A, Risk Factors disclosed herein and in our Annual Report on Form 10-K for fiscal 2020 for risk factors reflecting the impact of the COVID-19 pandemic. Additionally, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosed in our Annual Report on Form 10-K for fiscal 20202021 for our assessment of ~~the impact of the COVID-19 pandemic experienced during fiscal 2020 regarding our business continuity plans~~risk factors surrounding inflationary, supply chain and actions taken; supply chain; financial condition and results of global operations; liquidity, capital and financial resources; recoverability and/or impairment of assets; and internal controls over financial reporting in a remote work environment. There have been no material changes to our assessment of the COVID-19 pandemic during the three months ended March 27, 2021 and how it may continue to affect us in subsequent periods.cybersecurity risks.

Recent Acquisitions

Our strategy is to augment internal growth of existing businesses with complementary acquisitions. Our recent acquisitions are described below.

Fiscal Year 2022 Acquisition

On April 5, 2022, we acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements our existing IS business, specifically our CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The preliminary purchase price of Explora BioLabs was approximately $295 million in cash, subject to customary closing adjustments. The acquisition was funded through proceeds from our Credit Facility. This business will be reported as part of our RMS segment.

Fiscal Year 2021 Acquisitions

On June 28, 2021, we acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash, and includes $34.5 million of contingent consideration (maximum contingent payments of up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our Manufacturing reportable segment.

On March 30, 2021, ~~(second fiscal quarter of 2021),~~ we acquired Retrogenix Limited (Retrogenix) ~~for approximately £35 million in cash (or approximately $48 million based on current exchange rates)~~, subject to customary closing adjustments. In addition to the initial purchase price, the transaction includes a potential additional payment of up to £5 million based on future performance (or approximately $7 million based on current exchange rates). Retrogenix is an early-stage CRO providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances our scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are additional payments up to $6.9 million, which are contingent on future performance. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business ~~will be~~is reported as part of our DSA reportable segment.

On March 29, 2021, ~~(second fiscal quarter of 2021),~~ we acquired Cognate BioServices, Inc. ~~(Cognate BioServices) for approximately $875 million in cash, subject to customary closing adjustments. Cognate BioServices is~~(Cognate), a cell and gene therapy ~~contract development and manufacturing organization (CDMO)~~CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate ~~BioServices~~ establishes us as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired. The acquisition was funded through a combination of available cash ~~as well as~~and proceeds from our Credit Facility and ~~recently~~Senior Notes issued ~~Senior Notes.~~in fiscal 2021. This business ~~will be~~is reported as part of our Manufacturing reportable segment.

On March 3, 2021, we acquired certain assets from a distributor that supports our DSA reportable segment. The ~~preliminary~~ purchase price was ~~$35.6~~$35.4 million, which includes ~~$19.7~~$19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), ~~subject to customary closing adjustments,~~ and $15.9 million of contingent consideration (the maximum contingent contractual payments are up to $17.5 million). The business is reported as part of our DSA reportable segment.

On December 31, 2020, we acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands our capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The ~~preliminary~~ purchase price of Distributed Bio was $97.0 million, net of $0.8 million in ~~cash, subject to certain post-closing adjustments.~~cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously ~~invested~~issued by us during prior fiscal years, and ~~$14.0~~$14.1 million of contingent consideration (the maximum contingent contractual payments are up to $21.0 million). The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

Recent Divestitures

On ~~August 6, 2020,~~October 12, 2021, we acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances our unique, comprehensive solutions for the high-growth cell therapy market, strengthening our ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands our access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price for Cellero was $37.4 million in cash. The acquisition was funded through available cash. This business is reported as part ofcompleted two separate divestitures. We sold our RMS ~~reportable segment.~~

~~On January 3, 2020, we acquired HemaCare Corporation (HemaCare),~~Japan operations to The Jackson Laboratory for a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands our comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. Thepreliminary purchase price of ~~HemaCare was $379.8~~$73.1 million, which included $7.9 million in ~~cash. The acquisition was funded through~~cash, $3.8 million pension over funding, and certain post-closing adjustments. We also sold our gene therapy CDMO site in Sweden to a ~~combination~~private investor group for a preliminary purchase price of ~~available~~$59.6 million, net of $0.2 million in cash and ~~proceeds from~~certain post-closing adjustments. Included in the purchase price are contingent payments fair valued at $15.3 million, (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10 million between the parties. We routinely evaluate the strategic fit and fundamental performance of our ~~Credit Facility. This business is reported as~~acquisitions integrated within our global infrastructure. As part of ~~our RMS reportable segment.~~this assessment, we determined that the above capital could be better deployed in other long-term growth opportunities.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Fiscal Quarters

Our fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. A 53rd week in the fourth quarter of the fiscal year is occasionally necessary to align with a December 31 calendar year-end, which will occur in this fiscal year 2022.

Overview of Results of Operations and Liquidity

Revenue for the three months ended March ~~27, 2021 was $824.6~~26, 2022 increased $89.3 million, or 10.8%, to $913.9 million compared to ~~$707.1~~$824.6 million in the corresponding period in ~~2020. This~~2021. The increase ~~of $117.5 million, or 16.6%,~~in revenue was primarily due to increases in our DSA segment, as well as the ~~increased demand across all of~~recent acquisitions, principally within our ~~segments, principally DSA, and~~Manufacturing segment; partially offset by the ~~positive~~divestiture of RMS Japan and the negative effect of changes in foreign currency exchange rates ~~which increased revenue by $21.1 million, or 2.9%,~~ when compared to the corresponding three month period in ~~2020.~~2021.

In the three months ended March ~~27, 2021,~~26, 2022, our operating income and operating income margin were ~~$123.7~~$148.8 million and ~~15.0%~~16.3%, respectively, compared with ~~$94.3~~$123.7 million and ~~13.3%~~15.0%, respectively, in the corresponding period of ~~2020.~~2021. The increases in operating income and operating income margin ~~were~~for the three months ended March 26, 2022 was primarily due to the contribution of higher revenue ~~across all of our segments, principally DSA and RMS, partially offset by higher acquisition related costs~~described above compared to the ~~same~~corresponding period in ~~2020.~~2021.

Net income attributable to common shareholders increased to ~~$61.5~~$93.0 million in the three months ended March ~~27, 2021,~~26, 2022, from ~~$50.8~~$61.5 million in the corresponding period of ~~2020.~~2021. The increase in Net income attributable to common shareholders was primarily due to the increase in operating income described above ~~partially offset~~and by the absence of debt extinguishment costs associated with

the repayment of the 2026 Senior Notes and related write-off of deferred financing costs ~~as compared to the corresponding period~~incurred in ~~2020.~~2021.

During the first three months of ~~2021,~~2022, our cash flows from operations was ~~$170.2~~$102.6 million compared with ~~$68.6~~$170.2 million for the same period in ~~2020.~~2021. The ~~increase~~decrease was driven by ~~higher net income and certain favorable changes in~~timing of our working capital ~~items, including the timing of vendor and supplier~~balances, principally variable compensation payments and collections of net contract balances from ~~contracts with~~ customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits); partially offset by favorable timing of our vendor and supplier payments compared to the same period in ~~2020.~~

In the three months ended March 27, 2021, we issued $1 billion split between $500 million of 3.75% Senior Notes due in 2029 (2029 Senior Notes), and $500 million of 4.00% Senior Notes due in 2031 (2031 Senior Notes), in an unregistered offering. Interest on the 2029 and 2031 Senior Notes is payable semi-annually on March 15 and September 15. Proceeds from the 2029 and 2031 Senior Notes were used as follows: prepay the $500 million 2026 Senior Notes, $21 million of debt extinguishment costs, and $13 million of accrued interest; prepay the $146.9 million remaining term loan; pay down $135 million of the revolving facility; and pay for a portion of the Cognate BioServices acquisition, which occurred on March 29, 2021. Additionally, in April 2021, we amended and restated our Credit Facility by extending the maturity date to April 2026 and increasing the amount of our multi-currency revolving facility from $2.05 billion to $3.0 billion.

Results of Operations

Three Months Ended March ~~27, 2021~~26, 2022 Compared to the Three Months Ended March ~~28, 2020~~27, 2021

Revenue and Operating Income

The following tables present consolidated revenue by type and by reportable segment:

Three Months Ended
March 27, 2021 March 28, 2020 $ change % change
(in millions, except percentages)
Service revenue $ 626.6 $ 546.6 $ 80.0 14.6 %
Product revenue 198.0 160.5 37.5 23.4 %
Total revenue $ 824.6 $ 707.1 $ 117.5 16.6 %

Three Months Ended
March 27, 2021 March 28, 2020 $ change % change Impact of FX
(in millions, except percentages)
RMS $ 176.9 $ 146.0 $ 30.9 21.2 % 4.2 %
DSA 501.2 438.7 62.5 14.2 % 2.3 %
Manufacturing 146.5 122.4 24.1 19.7 % 4.1 %
Total revenue $ 824.6 $ 707.1 $ 117.5 16.6 % 2.9 %


	Three Months Ended
	March 26, 2022		March 27, 2021		$ change		% change
	(in millions, except percentages)
Service revenue	$	720.5	$	626.6	$	93.9	15.0	%
Product revenue	193.4		198.0		(4.6)		(2.3)	%
Total revenue	$	913.9	$	824.6	$	89.3	10.8	%


	Three Months Ended
	March 26, 2022		March 27, 2021		$ change		% change		Impact of FX
	(in millions, except percentages)
RMS	$	176.5	$	176.9	$	(0.4)	(0.2)	%	(1.2)	%
DSA	544.3		501.2		43.1		8.6	%	(1.6)	%
Manufacturing	193.1		146.5		46.6		31.8	%	(2.7)	%
Total revenue	$	913.9	$	824.6	$	89.3	10.8	%	(1.7)	%

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following table presents operating income by reportable segment:

Three Months Ended
March 27, 2021 March 28, 2020 $ change % change
(in millions, except percentages)
RMS $ 44.9 $ 27.4 $ 17.5 64.2 %
DSA 91.0 72.3 18.7 25.8 %
Manufacturing 49.4 41.1 8.3 20.2 %
Unallocated corporate (61.6) (46.5) (15.1) 32.5 %
Total operating income $ 123.7 $ 94.3 $ 29.4 31.2 %
Operating income % of revenue 15.0 % 13.3 % 1.7 %


	Three Months Ended
	March 26, 2022			March 27, 2021			$ change		% change
	(in millions, except percentages)
RMS	$	47.9		$	44.9		$	3.0	6.6	%
DSA	105.0			91.0			14.0		15.4	%
Manufacturing	46.4			49.4			(3.0)		(6.2)	%
Unallocated corporate	(50.5)			(61.6)			11.1		(18.1)	%
Total operating income	$	148.8		$	123.7		$	25.1	20.3	%
Operating income % of revenue	16.3		%	15.0		%			130 bps

The following presents and discusses our consolidated financial results by each of our reportable segments:

RMS


		Three Months Ended													Three Months Ended
		March 27, 2021			March 28, 2020			$ change		% change		Impact of FX			March 26, 2022			March 27, 2021			$ change		% change		Impact of FX
		(in millions, except percentages)													(in millions, except percentages)
Revenue	Revenue	$	176.9		$	146.0		$	30.9	21.2	%	4.2	%	Revenue	$	176.5		$	176.9		$	(0.4)	(0.2)	%	(1.2)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	105.3			95.9			9.4		9.9	%			Cost of revenue (excluding amortization of intangible assets)	102.4			105.3			(2.9)		(2.7)	%
Selling, general and administrative	Selling, general and administrative	22.6			19.1			3.5		17.8	%			Selling, general and administrative	22.4			22.6			(0.2)		(0.9)	%
Amortization of intangible assets	Amortization of intangible assets	4.1			3.6			0.5		13.0	%			Amortization of intangible assets	3.8			4.1			(0.3)		(5.7)	%
Operating income	Operating income	$	44.9		$	27.4		$	17.5	64.2	%			Operating income	$	47.9		$	44.9		$	3.0	6.6	%
Operating income % of revenue	Operating income % of revenue	25.4		%	18.7		%			6.7	%			Operating income % of revenue	27.1		%	25.4		%			170 bps

RMS revenue ~~increased $30.9~~decreased $0.4 million ~~due primarily to higher research model product revenue across all geographies, most notably China, as we recovered from the impact of the COVID-19 pandemic~~ compared to the corresponding period in ~~2020; higher research model services~~2021. The reduction of revenue ~~specifically our GEMS business;~~was due primarily to the ~~acquisition~~divestiture of ~~Cellero,~~RMS Japan, which ~~contributed $2.6~~decreased revenue by $12.7 million ~~to product revenue;~~ and the effect of changes in foreign currency exchange ~~rates.~~rates; partially offset by higher research model product revenue in North America; and higher research model services revenue, principally our Insourcing Solutions business compared to the corresponding period in 2021.

RMS operating income increased ~~$17.5~~$3.0 million compared to the corresponding period in ~~2020.~~2021. RMS operating income as a percentage of revenue for the three months ended March ~~27, 2021~~26, 2022 was ~~25.4%~~27.1%, an increase of ~~6.7%~~ 170 bpsfrom ~~18.7%~~25.4% for the corresponding period in ~~2020.~~2021. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher research model revenue described above as well as lower amortization of intangible assets related to our acquisitions during the three months ended March 26, 2022 compared to the same period in 2021.

DSA


	Three Months Ended
	March 26, 2022			March 27, 2021			$ change		% change		Impact of FX
	(in millions, except percentages)
Revenue	$	544.3		$	501.2		$	43.1	8.6	%	(1.6)	%
Cost of revenue (excluding amortization of intangible assets)	373.1			340.1			33.0		9.7	%
Selling, general and administrative	43.9			47.6			(3.7)		(7.9)	%
Amortization of intangible assets	22.3			22.5			(0.2)		(1.3)	%
Operating income	$	105.0		$	91.0		$	14.0	15.4	%
Operating income % of revenue	19.3		%	18.1		%			120 bps

DSA revenue increased $43.1 million due primarily to service revenue which increased in both the Safety Assessment and Discovery Services businesses due principally to increased pricing of services; and the acquisition of Retrogenix which contributed $3.1 million to Discovery Services revenue; partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income increased $14.0 million during the three months ended March 26, 2022 compared to the corresponding period in 2021. DSA operating income as a percentage of revenue for the three months ended March 26, 2022 was 19.3%, an

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

increase of 120 bps from 18.1% for the corresponding period in 2021. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher revenue described ~~above.~~above as well as lower acquisition related costs and adjustments to contingent consideration arrangements related to certain acquisitions; offset by higher staffing costs compared to the same period in 2021.

~~DSA~~Manufacturing


		Three Months Ended													Three Months Ended
		March 27, 2021			March 28, 2020			$ change		% change		Impact of FX			March 26, 2022			March 27, 2021			$ change		% change		Impact of FX
		(in millions, except percentages)													(in millions, except percentages)
Revenue	Revenue	$	501.2		$	438.7		$	62.5	14.2	%	2.3	%	Revenue	$	193.1		$	146.5		$	46.6	31.8	%	(2.7)	%
Cost of revenue (excluding amortization of intangible assets)	Cost of revenue (excluding amortization of intangible assets)	340.1			301.1			39.0		12.9	%			Cost of revenue (excluding amortization of intangible assets)	101.5			70.9			30.6		43.2	%
Selling, general and administrative	Selling, general and administrative	47.6			43.3			4.3		10.1	%			Selling, general and administrative	33.3			24.0			9.3		38.8	%
Amortization of intangible assets	Amortization of intangible assets	22.5			22.0			0.5		2.4	%			Amortization of intangible assets	11.9			2.2			9.7		437.4	%
Operating income	Operating income	$	91.0		$	72.3		$	18.7	25.8	%			Operating income	$	46.4		$	49.4		$	(3.0)	(6.2)	%
Operating income % of revenue	Operating income % of revenue	18.1		%	16.5		%			1.6	%			Operating income % of revenue	24.0		%	33.8		%			(980) bps

~~DSA~~Manufacturing revenue increased ~~$62.5~~$46.6 million due primarily to our Biologics Solutions business, which included the CDMO business acquisitions of Cognate and Vigene, which collectively contributed $35.8 million, and higher service revenue ~~which increased in both the Safety Assessment and Discovery Services businesses due to demand from biotechnology and global biopharmaceutical clients, increased pricing of services, and~~within our Biologics Testing Solutions business, as well as Microbial Solutions revenue also increasing; partially offset by the effect of changes in foreign currency exchange rates. ~~DSA revenue was not significantly impacted by the COVID-19 pandemic during the three months ended March 27, 2021 and March 28, 2020.~~

~~DSA~~Manufacturing operating income ~~increased $18.7~~decreased $3.0 million during the three months ended March ~~27, 2021~~26, 2022 compared to the corresponding period in 2020. DSA operating income as a percentage of revenue for the three months ended March 27, 2021 was 18.1%, an increase of 1.6% from 16.5% for the corresponding period in 2020. Operating income and operating income as a percentage of revenue increased primarily due to the contribution of higher revenue described above.

~~Manufacturing~~

Three Months Ended
March 27, 2021 March 28, 2020 $ change % change Impact of FX
(in millions, except percentages)
Revenue $ 146.5 $ 122.4 $ 24.1 19.7 % 4.1 %
Cost of revenue (excluding amortization of intangible assets) 70.9 58.0 12.9 22.1 %
Selling, general and administrative 24.0 21.0 3.0 14.3 %
Amortization of intangible assets 2.2 2.3 (0.1) (1.5) %
Operating income $ 49.4 $ 41.1 $ 8.3 20.2 %
Operating income % of revenue 33.8 % 33.6 % 0.2 %

Manufacturing revenue increased $24.1 million due primarily to higher service revenue in the Biologics business, increased demand for endotoxin products in our Microbial Solutions business, and the effect of changes in foreign currency exchange rates. Overall, Manufacturing revenue was not significantly impacted by the COVID-19 pandemic during the three months ended March 27, 2021 and March 28, 2020.

~~Manufacturing operating income increased $8.3 million during the three months ended March 27, 2021 compared to the corresponding period in 2020.~~2021. Manufacturing operating income as a percentage of revenue for the three months ended March ~~27, 2021~~26, 2022 was ~~33.8%~~24.0%, ~~an increase~~a decrease of ~~0.2%~~(980) bps from ~~33.6%~~33.8% for the corresponding period in ~~2020. The increases were~~2021. Operating income and operating income as a percentage of revenue decreased principally due ~~primarily~~ to ~~the contribution~~higher amortization of ~~higher revenue in our Biologics business in~~intangible assets and acquisition related costs during the three months ended March ~~27, 2021~~26, 2022 compared to the ~~same~~corresponding period in ~~2020.~~2021 and due to higher operating costs associated with our CDMO acquisitions.

Unallocated Corporate


		Three Months Ended											Three Months Ended
		March 27, 2021			March 28, 2020			$ change		% change			March 26, 2022			March 27, 2021			$ change		% change
		(in millions, except percentages)											(in millions, except percentages)
Unallocated corporate	Unallocated corporate	$	61.6		$	46.5		$	15.1	32.5	%	Unallocated corporate	$	50.5		$	61.6		$	(11.1)	(18.1)	%
Unallocated corporate % of revenue	Unallocated corporate % of revenue	7.5		%	6.6		%			0.9	%	Unallocated corporate % of revenue	5.5		%	7.5		%			(200) bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The ~~increase~~decrease in unallocated corporate costs of ~~$15.1~~$11.1 million, or ~~32.5%~~(18.1)%, compared to the corresponding period in ~~2020~~2021 is primarily related to ~~an increase in compensation, benefits, and other employee-related expenses, and increased~~decreased costs associated with the evaluation and integration of our recent acquisition activity. Costs as a percentage of revenue for thethree months ended March ~~27, 2021~~26, 2022 was ~~7.5%~~5.5%, ~~an increase~~a decrease of ~~0.9%~~(200) bps from ~~6.6%~~7.5% for the corresponding period in ~~2020.~~2021.

Interest Income

Interest income, which represents earnings on cash, cash equivalents, and time deposits was ~~less than~~approximately $0.1 million ~~and $0.3 million~~ for both the three months ended March ~~27, 2021~~26, 2022 and the corresponding period in ~~2020, respectively.~~2021.

Interest Expense

Interest expense for the three months ended March ~~27, 2021~~26, 2022 was ~~$29.7~~$9.4 million, ~~an increase~~a decrease of ~~$14.6~~$20.3 million, or ~~97.2%~~68.3%, compared to ~~$15.1~~$29.7 million for the corresponding period in ~~2020.~~2021. The ~~increase~~decrease was due primarily to $26 million of debt extinguishment costs associated with the repayment of the 2026 Senior Notes and related write-off of deferred financing costs incurred in the three months ended March 27, 2021, partially offset by a ~~higher~~lower foreign currency gain recognized in connection with a debt-related foreign exchange forward contract, and higher interest rates on our variable debt in the three months ended March ~~27, 2021 as~~26, 2022 compared to the corresponding period in ~~2020.~~2021.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Other Expense, Net

Other expense, net, was ~~$27.7~~$28.6 million for the three months ended March ~~27, 2021,~~26, 2022, an increase of ~~$3.6~~$0.9 million compared to ~~$24.1~~$27.7 million for the corresponding period in ~~2020.~~2021. The increase was due primarily to ~~higher~~losses on our life insurance investments for the three months ended March 26, 2022 as compared to gains incurred during the corresponding period in 2021; partially offset by lower foreign currency losses recognized in connection with a U.S. dollar denominated loan borrowed by a non-U.S. entity with a different functional currency in the three months ended March ~~27, 2021~~26, 2022 as compared to the corresponding period in ~~2020,~~2021 and ~~higher~~lower venture capital investment losses in the three months ended March ~~27, 2021~~26, 2022 as compared to the corresponding period in 2020, primarily driven by our publicly-held investments; partially offset by higher gains on our life insurance investments for the three months ended March 27, 2021 as compared to losses incurred during the corresponding period in 2020.

2021.

Income Taxes

Income tax expense for the three months ended March ~~27, 2021~~26, 2022 was ~~$2.4~~$15.6 million, ~~a decrease~~an increase of ~~$2.2~~$13.2 million compared to ~~$4.6~~$2.4 million for the corresponding period in ~~2020.~~2021. Our effective tax rate was ~~3.6%~~14.1% for the three months ended March ~~27, 2021,~~26, 2022 compared to ~~8.3%~~3.6% for the corresponding period in ~~2020.~~2021. The ~~decrease~~increase in our effective tax rate in the ~~2021~~2022 period compared to the ~~2020~~2021 period was primarily ~~related~~attributable to ~~increased~~a decreased tax benefit from stock-based compensation deductions in the ~~first quarter of 2021.~~three months ended March 26, 2022.

Liquidity and Capital Resources

We currently require cash to fund our working capital needs, capital expansion, acquisitions, and to pay our debt, lease, venture capital investment, and pension obligations. Our principal sources of liquidity have been our cash flows from operations, supplemented by long-term borrowings. Based on our current business plan, we believe that our existing funds, when combined with cash generated from operations and our access to financing resources, are sufficient to fund our operations for the foreseeable future.

The following table presents our cash, cash equivalents and short-term investments:

March 27, 2021 December 26, 2020
(in millions)
Cash and cash equivalents:
Held in U.S. entities $ 218.9 $ 11.8
Held in non-U.S. entities 246.5 216.6
Total cash and cash equivalents 465.4 228.4
Short-term investments:
Held in non-U.S. entities 1.0 1.0
Total cash, cash equivalents and short-term investments $ 466.4 $ 229.4


	March 26, 2022		December 25, 2021
	(in millions)
Cash and cash equivalents:
Held in U.S. entities	$	15.1	$	28.2
Held in non-U.S. entities	226.8		213.0
Total cash and cash equivalents	241.9		241.2
Short-term investments:
Held in non-U.S. entities	1.1		1.1
Total cash, cash equivalents and short-term investments	$	243.0	$	242.3

Borrowings

~~As of March 27, 2021, we had a credit facility, which consisted of a $750.0 million term loan, which was fully repaid~~ ~~as of March 27, 2021, and a $2.05 billion multi-currency revolving facility~~. The term loan facility matured in 19 quarterly installments with the last installment due March 26, 2023. The revolving facility was set to mature on March 26, 2023, and required no scheduled payment before that date.

In April 2021, we amended and restated the Credit Facility creating a $3.0 billion multi-currency revolving facility, which extends the maturity date to April 2026 and requires no scheduled payment before that date. The Credit Facility provides for a $3.0 billion multi-currency revolving facility.

~~We also have certain indentures that allow for senior notes offerings:~~

•In 2018, we raised $500.0 million of 5.5% Senior Notes due in 2026 (2026 Senior Notes) in an unregistered offering. Interest on the 2026 Senior Notes was payable semi-annually on April 1 and October 1. On March 23, 2021, we repaid the $500.0 million 2026 Senior Notes with proceeds from our 2029 and 2031 Senior Notes (see below).

•~~In 2019, we raised $500.0 million of 4.25% Senior Notes due in 2028 (2028 Senior Notes) in an unregistered offering. Interest on the 2028 Senior Notes is payable semi-annually on May 1 and November 1.~~

•In March 2021, we raised $1.0 billion of senior notes split between $500 million of 3.75% Senior Notes due in 2029 (2029 Senior Notes), and $500 million of 4.00% Senior Notes due in 2031 (2031 Senior Notes) in an unregistered offering. Interest on the 2029 and 2031 Senior Notes is payable semi-annually on March 15 and September 15.

Amounts outstanding under our Credit Facility and our Senior Notes were as follows:


	March 26, 2022		December 25, 2021
	(in millions)
Revolving facility	$	1,174.2	$	1,161.4
4.25% Senior Notes due 2028	500.0		500.0
3.75% Senior Notes due 2029	500.0		500.0
4.00% Senior Notes due 2031	500.0		500.0
Total	$	2,674.2	$	2,661.4

March 27, 2021 December 26, 2020
(in millions)
Term loans $ — $ 146.9
Revolving facility 694.1 814.8
5.5% Senior Notes due 2026 — 500.0
4.25% Senior Notes due 2028 500.0 500.0
3.75% Senior Notes due 2029 500.0 —
4.0% Senior Notes due 2031 500.0 —
Total $ 2,194.1 $ 1,961.7

~~During the three months ended March 27, 2021, the~~The interest rates applicable to the ~~term loan and revolving facility under the~~ Credit Facility are equal to (A) for revolving loans denominated in U.S. dollars, at our option, ~~equal to~~ either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted LIBOR rate plus ~~1.0%~~1%) or the adjusted LIBOR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon our leverage ratio.

Our off-balance sheet commitments related to our outstanding letters of credit as of March 26, 2022 were $17.7 million.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Repurchases of Common Stock

During the three months ended March ~~27, 2021,~~26, 2022, we did not repurchase any shares under our authorized stock repurchase program. As of March ~~27, 2021,~~26, 2022, we had $129.1 million remaining on the authorized $1.3 billion stock repurchase program and we do not intend to repurchase shares for the remainder of ~~2021.~~2022. Our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. During the three months ended March ~~27, 2021,~~26, 2022, we acquired 0.1 million shares for ~~$36.0~~$34.0 million through such netting.

Cash Flows

The following table presents our net cash provided by operating activities:

Three Months Ended
March 27, 2021 March 28, 2020
(in millions)
Net income $ 63.9 $ 50.8
Adjustments to reconcile net income to net cash provided by operating activities 109.7 87.8
Changes in assets and liabilities (3.4) (70.0)
Net cash provided by operating activities $ 170.2 $ 68.6


	Three Months Ended
	March 26, 2022		March 27, 2021
	(in millions)
Net income	$	95.2	$	63.9
Adjustments to reconcile net income to net cash provided by operating activities	99.0		109.7
Changes in assets and liabilities	(91.6)		(3.4)
Net cash provided by operating activities	$	102.6	$	170.2

Net cash provided by cash flows from operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for (1) non-cash operating items such as depreciation and amortization, stock-based compensation, loss on debt extinguishment and other financing costs, deferred income taxes, gains and/or losses on venture capital and strategic equity investments, gains and/or losses on divestitures, contingent consideration, as well as (2) changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations. For the three months ended March ~~27, 2021,~~26, 2022, compared to the three months ended March ~~28, 2020,~~27, 2021, the ~~increase~~decrease in net cash provided by operating activities was driven by ~~higher net income and certain favorable changes in~~timing of our working capital ~~items, including the timing of vendor and supplier~~balances, principally variable compensation payments and collections of net contract balances from ~~contracts with~~ customers (collectively trade receivables and contract assets, net; deferred revenue; and customer contract deposits); partially offset by favorable timing of our vendor and supplier payments compared to the same period in ~~2020.~~2021.

The following table presents our net cash used in investing activities:


	Three Months Ended
	March 26, 2022		March 27, 2021
	(in millions)
Acquisition of businesses and assets, net of cash acquired	$	—	$	(94.2)
Capital expenditures	(80.5)		(28.0)
Investments, net	(13.1)		(16.6)
Other, net	(4.4)		0.8
Net cash used in investing activities	$	(98.0)	$	(138.0)

Three Months Ended
March 27, 2021 March 28, 2020
(in millions)
Acquisitions of businesses and assets, net of cash acquired $ (94.2) $ (382.3)
Capital expenditures (28.0) (25.7)
Investments, net (16.6) (4.6)
Other, net 0.8 (1.1)
Net cash used in investing activities $ (138.0) $ (413.7)

For the three months ended March 26, 2022, the primary use of cash used in investing activities related to capital expenditures to support the growth of the business and investments in certain venture capital and strategic equity investments. For the three months ended March 27, 2021, the primary use of cash used in investing activities related to the acquisition of Distributed Bio and certain assets from a distributor, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments. For the three months ended March 28, 2020, the primary use of cash used in investing activities related to the acquisition of HemaCare, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following table presents our net cash (used in) provided by financing activities:


		Three Months Ended					Three Months Ended
		March 27, 2021		March 28, 2020			March 26, 2022		March 27, 2021
		(in millions)					(in millions)
Proceeds from long-term debt and revolving credit facility	Proceeds from long-term debt and revolving credit facility	$	1,954.0	$	1,409.8	Proceeds from long-term debt and revolving credit facility	$	962.0	$	1,954.0
Payments on long-term debt, revolving credit facility, and finance lease obligations	Payments on long-term debt, revolving credit facility, and finance lease obligations	(1,714.2)		(925.1)		Payments on long-term debt, revolving credit facility, and finance lease obligations	(948.3)		(1,714.2)
Proceeds from exercises of stock options	Proceeds from exercises of stock options	19.6		22.6		Proceeds from exercises of stock options	12.2		19.6
Purchase of treasury stock	Purchase of treasury stock	(36.0)		(23.7)		Purchase of treasury stock	(34.0)		(36.0)
Payment of debt extinguishment and financing costs	Payment of debt extinguishment and financing costs	(28.7)		—		Payment of debt extinguishment and financing costs	—		(28.7)
Other, net	Other, net	—		(4.4)		Other, net	(5.2)		—
Net cash provided by financing activities		$	194.7	$	479.2
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	$	(13.3)	$	194.7

For the three months ended March 26, 2022, net cash used in financing activities reflected the net proceeds of $13.7 million on our Credit Facility, Senior Notes, and finance lease obligations. Included in the net proceeds are the following amounts:

•Net borrowings of $52 million made to our Credit Facility throughout the three months ended March 26, 2022;

•Payments of $796 million partially offset by $759 million of proceeds in connection with a non-U.S. Euro functional currency entity repaying Euro loans and replacing the Euro loans with U.S. dollar denominated loans. A series of forward currency contracts were executed to mitigate any foreign currency gains or losses on the U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.

Net cash used in financing activities also reflected treasury stock purchases of $34.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, partially offset by proceeds from exercises of employee stock options of $12.2 million.

For the three months ended March 27, 2021, net cash provided by financing activities reflected the net proceeds of $239.8 million on our Credit Facility, Senior Notes, and finance lease obligations. Included in the net proceeds are the following amounts:

•Proceeds of $1 billion from the issuance of the 2029 and 2031 Senior Notes, which were used to prepay our $500 million 2026 Senior Notes;

•Payments of approximately $147 million on our term loan and net payments of $85 million to our revolving credit facility throughout the three months ended March 27, 2021;

•Payments of $766 million partially offset by $739 million of proceeds in connection with a non-U.S. Euro functional currency entity repaying Euro loans and replacing the Euro loans with U.S. dollar denominated loans. A series of forward currency contracts were executed to mitigate any foreign currency gains or losses on the U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.

Net cash provided by financing activities also reflected proceeds from exercises of employee stock options of $19.6 million, offset by treasury stock purchases of $36.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements. Additionally we paid $21 million of debt extinguishment costs associated with the 2026 Senior Notes repayment and $8 million of debt financing costs associated with the 2029 and 2031 Senior Notes issuances.

~~For the three months ended March 28, 2020, net cash provided by financing activities reflected the net proceeds of $484.7 million on our Credit Facility~~

Off-Balance Sheet and ~~finance lease obligations. Included in the net proceeds are the following amounts:~~Other Arrangements

•Proceeds of approximately $415 million from our revolving Credit Facility to fund our recent acquisitions. Additionally, towards the end of the fiscal quarter, we borrowed an additional $150 million from our revolving Credit Facility to secure available cash in response to uncertainties due to the COVID-19 pandemic; partially offset by,

•~~Payments of approximately $10 million on our term loan and payments of $70 million to our revolving Credit Facility in the normal course of business throughout the fiscal quarter;~~

•Additionally, we had $798 million of gross payments, partially offset by $794 million of gross proceeds in connection with a non-U.S. Euro functional currency entity repaying Euro loans and replacing the Euro loans with U.S. dollar

denominated loans. A series of forward currency contracts were executed to mitigate any foreign currency gains or losses on the U.S. dollar denominated loans. These proceeds and payments are presented as gross financing activities.

Net cash provided by financing activities also reflected proceeds from exercises of employee stock options of $22.6 million, offset by treasury stock purchases of $23.7 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements.

~~Contractual Commitments and Obligations~~

~~The disclosure of our contractual commitments and obligations was reported in our Annual Report on Form 10-K for fiscal 2020.~~ There have been no material changes from the ~~contractual commitments~~off-balance sheet and ~~obligations~~other arrangements previously disclosed in our Annual Report on Form 10-K for fiscal ~~2020~~2021 other than the changes described in Note 2, ~~“Business Combinations,~~“Acquisitions and Divestitures,” Note 7, “Fair Value,” Note 9, ~~“Long-Term Debt~~“Debt and ~~Finance Lease Obligations,~~Other Financing Arrangements,” ~~Note 16, “Leases,”~~, and Note ~~17,~~13, “Commitments and Contingencies,” in our notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Off-Balance Sheet Arrangements~~

As of March 27, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K promulgated under the Exchange Act, except as disclosed below.

Venture Capital Investments

We invest in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. Our total commitment to the funds as of March ~~27, 2021~~26, 2022 was ~~$149.3~~$173.9 million, of which we funded ~~$99.7~~$116.6 million through March ~~27, 2021.~~26, 2022. Refer to Note 6, “Venture Capital and Strategic Equity Investments” in this Quarterly Report on Form 10-Q for additional information.

~~Letters of Credit~~

~~Our off-balance sheet commitments related to our outstanding letters of credit as of March 27, 2021 were $16.8 million.~~

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reported periods and related disclosures. These estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience, trends in the industry, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

We believe that the application of our accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Note 1, “Description of Business and Summary of Significant Accounting Policies” to our Annual Report on Form 10-K for fiscal year ~~2020.~~2021.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements please refer to Note 1, “Basis of Presentation,” in this Quarterly Report on Form 10-Q. Other than as discussed in Note 1, “Basis of Presentation,” we did not adopt any other new accounting pronouncements during the three months ended March ~~27, 2021~~26, 2022 that had a significant effect on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

Interest Rate Risk

We are exposed to changes in interest rates while conducting normal business operations as a result of ongoing financing activities. As of March ~~27, 2021,~~26, 2022, our debt portfolio was comprised primarily of floating interest rate borrowings. A 100-basis point increase in interest rates would increase our annual pre-tax interest expense by ~~$6.9~~$11.7 million.

Foreign Currency Exchange Rate Risk

We operate on a global basis and have exposure to some foreign currency exchange rate fluctuations for our financial position, results of operations, and cash flows.

While the financial results of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of the Company’s foreign subsidiaries are the Euro, British Pound and Canadian Dollar. During the three months ended March ~~27, 2021,~~26, 2022, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the Euro, Canadian Dollar, ~~Euro,~~ British Pound, and Hungarian ~~Forint, and Japanese Yen.~~Forint.

Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars. For the three months ended March ~~27, 2021,~~26, 2022, our revenue would have ~~increased~~decreased by $28.7 million and our operating income would have ~~increased~~decreased by ~~$0.7~~$0.3 million, if the U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.

We attempt to minimize this exposure by using certain financial instruments in accordance with our overall risk management and our hedge policy. We do not enter into speculative derivative agreements.

During the three months ended March ~~27, 2021,~~26, 2022, we entered into foreign exchange forward contracts to limit our foreign currency exposure related to both intercompany loans and a U.S. dollar denominated loan borrowed by a non-U.S. Euro functional currency entity under our Credit Facility. Refer to Note ~~14, “Foreign Currency Contracts”~~9, “Debt and Other Financing Arrangements” in this Quarterly Report on Form 10-Q for additional information regarding ~~this type~~these types of forward contracts.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Based on their evaluation, required by paragraph (b) of Rules 13a-15 or 15d-15, promulgated by the Securities Exchange Act of 1934, as amended (Exchange Act), the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are effective, at a reasonable assurance level, as of March ~~27, 2021,~~26, 2022, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

The Company continued to execute a plan to centralize certain accounting transaction processing functions to internal shared service centers during the three months ended March ~~27, 2021.~~26, 2022. There were no other material changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended March ~~27, 2021~~26, 2022 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

4033

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to Note ~~17,~~13, “Commitments and Contingencies” in our notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for fiscal year ~~2020,~~2021, which could materially affect our business, financial condition, and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for fiscal year ~~2020,~~2021, except as disclosed below.

~~Contract development and manufacturing services create a risk of liability.~~

~~The acquisition of Cognate will expand Charles River’s~~Our business, into the contract development and manufacturing organization (“CDMO”) market, which entails additional risks of liability, including potential product liability claims, errors and omissions claims in connection with Charles River’s services and potential liability under indemnification agreements between Charles River and its officers and directors.

~~Charles River customers’ failure to receive or maintain regulatory approval for their product candidates could negatively impact Charles River’s revenue and profitability.~~

Charles River will have significant business which will materially depend upon the regulatory approval of the products it will manufacture for its CDMO customers. As such, if these customers experience a delay in, or failure to receive, approval for any of their product candidates or fail to maintain regulatory approval of their products that Charles River develops or manufactures, Charles River’s revenue and profitability could be materially adversely affected. Additionally, if the Food and Drug Administration or a comparable foreign regulatory authority does not approve of Charles River’s facilities for the manufacture of a customer product, observes significant deficiencies or violations at its facilities or withdraws such approval in the future, Charles River’s customers may choose to identify alternative manufacturing facilities and/or relationships, which could significantly impact Charles River’s CDMO capacity and capabilities and results of operations, ~~therefrom.~~

~~Charles River’s CDMO business,~~or financial condition ~~and results of operations may be adversely affected if the products Charles River manufactures for its customers do not gain market acceptance.~~

If the products Charles River manufactures for its customers do not gain market acceptance or production volumes of key products that Charles River manufactures for its customers decline, financial condition and results of operations may be adversely affected. For Charles River’s CDMO business, Charles River will depend on, and have no control over, market acceptance for the products that Charles River will manufacture for its customers. Consumer demand for these products could be adversely affected by among other things, delays in securing regulatory approvals, the emergence of competing or alternative products, including generic drugs, the emergence of new safety data for such products, the loss of patent and other intellectual property rights protection, reductions in private and government payment product subsidies or changing product marketing strategies.

~~Charles River will have various competitors~~disruptions in the ~~CDMO market which could result~~global economy caused by the ongoing conflict between the Russian Federation and Ukraine.

In February 2022, the Russian Federation launched an invasion of the country of Ukraine, resulting in ~~a decrease~~negative impacts to the global economy. Furthermore, governments in the ~~fees paid for Charles River’s services~~U.S., Canada, the United Kingdom, and ~~may adversely affect its results of operations~~European Union have each imposed export controls on certain products and financial ~~condition.~~

~~Charles River’s competition~~and economic sanctions on certain industry sectors and parties in ~~the CDMO market will include full-service contract manufacturers~~Russia. Although we have no operations in Russia or Ukraine, we have ceased doing business with our Russian customers and ~~large pharmaceutical companies offering third-party manufacturing services~~distributors. Additional risks to fill their excess capacity. Also, large pharmaceutical companies have been seeking to divest portions of their manufacturing capacity, and any such divested businesses may compete with Charles River in the future. Furthermore, many of Charles River’s CDMO competitors may have substantially greater financial, marketing, technical or other resources than Charles River does. Moreover, additional competitionour business that may emerge ~~particularly~~as a result of the armed conflict include, among others, shortages in ~~lower-cost jurisdictions such as India~~materials; increased costs for transportation, energy, and ~~China, which could, among other things, result in a decrease in the fees paid for Charles River’s services,~~raw materials; increased trade barriers or restrictions on global trade; cyberattacks; supply disruptions; lower consumer demand; and changes to foreign exchange rates and financial markets, any of which may adversely affect ~~Charles River’s results of operations~~our business and ~~financial condition.~~

~~Manufacturing services are highly complex and failure to provide quality and timely services to Charles River’s new customers, could adversely impact its business.~~

The development and manufacturing services Charles River will be offering will be highly complex, due in part to strict regulatory requirements. A failure of its quality control systems in its facilities could cause problems in connection with facility operations for a variety of reasons, including equipment malfunction, viral contamination, failure to follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental factors.

Such issues could affect production of a single manufacturing run or manufacturing campaigns, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, any failure to meet required quality standards may result in Charles River’s failure to timely deliver products to its customers which, in turn, could damage Charles River’s reputation for quality and service. Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost drug substances, damage to and possibly termination of customer relationships, time and expense spent investigating and remediating the cause and, depending on the cause, similar losses with respect to other manufacturing runs. In addition, such issues could subject Charles River to litigation, the cost of which could be significant.

~~CDMO operations are dependent upon the~~ supply of necessary raw materials and supplies from third parties, and any inability to obtain such raw materials or supplies could adversely impact Charles River’s business, results of operations and financial condition.

Charles River’s CDMO operations will require various raw materials supplied primarily by third parties. Charles River or its customers will specify the raw materials and other items required to manufacture their product and, in some cases, the customers will specify the suppliers from whom Charles River must purchase these raw materials. In certain instances, the raw materials and other items may only be supplied by a limited number of suppliers or in limited quantities. If third-party suppliers do not supply raw materials or other items on a timely basis, it may cause a manufacturing run to be delayed or canceled which could materially adversely affect Charles River’s results of operations and financial condition.

Furthermore, third-party suppliers may fail to provide Charles River with raw materials and other items that meet the qualifications and specifications required by Charles River or its customers. If third-party suppliers are not able to provide Charles River with raw materials that meet its or its customers’ specifications on a timely basis, Charles River may be unable to manufacture its product or it could prevent Charles River from delivering products to its customers within required time frames. Any such delay in delivering its products may create liability for Charles River to its customers for breach of contract or cause Charles River to experience order cancellations and loss of customers. In the event that Charles River manufactures products with components or raw materials that do not meet its qualifications and specifications or those of its customers or governmental or regulatory authorities, Charles River may become subject to product liability claims caused by defective raw materials or components from a third-party supplier or from a customer.

~~The failure to successfully obtain, maintain and enforce intellectual property rights and defend against challenges to intellectual property rights could adversely affect us.~~

Many of our services, products and processes rely on intellectual property. In some cases, that intellectual property is owned by another party and licensed to us, sometimes exclusively. To protect our intellectual property rights, we primarily rely upon trade secret law, confidentiality agreements and policies, invention assignments and other contractual arrangements, along with patent, copyright and trademark laws. Existing laws of certain countries outside of the United States in which we operate offer only limited protection, and these are subject to change at any time. In addition, the agreements upon which we rely to protect our intellectual property might be breached, or might not be fully enforceable. Our intellectual property rights might not prevent our competitors from independently developing intellectual property that is similar to or duplicative of ours. Also, enforcing our intellectual property rights might also require substantial time, money and oversight, and we might not be successful in enforcing our rights. If we are unable to obtain or maintain the proprietary rights to our intellectual property, if we are unable to prevent attempted infringement against our intellectual property, or if we are unable to defend against claims that we are infringing on another party’s intellectual property, we could be adversely affected. These adverse effects could include us having to abandon, alter or delay the deployment of products, services or processes that rely on such intellectual property; having to procure and pay for licenses from the holders of intellectual property rights that we seek to use; and having to pay damages, fines, court costs and attorney's fees in connection with intellectual property litigation.

Similarly, the customers of Cognate BioServices and its subsidiaries, which we acquired in the second quarter of 2021, also rely on intellectual property for the production of their products, the manufacture of which has been contracted to Cognate BioServices. Failure by such customers to obtain, maintain and enforce such intellectual property rights and defend against challenges to their intellectual property rights could have a material adverse effect, including reduced revenue as a result in a delay or cancellation of the manufacture of products that rely on such intellectual property, and having to pay legal expenses in connection with intellectual property litigation in which we are named as a party.

Further, the drug discovery and development industry has a history of patent and other intellectual property litigation and these lawsuits will likely continue. Legal proceedings relating to intellectual property are expensive, take significant time, and divert management’s attention from other business concerns, whether we win or lose. If we do not prevail in an infringement lawsuit brought against us, we may have to pay substantial damages, including treble damages, and we could be required to stop the infringing activity or obtain a license to use technology on unfavorable terms.chain.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to the purchases of shares of our common stock during the three months ended March ~~27, 2021.~~

Total Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or Programs
(in thousands)
December 27, 2020 to January 23, 2021 — $ — — $ 129,105
January 24, 2021 to February 20, 2021 91,179 260.87 — 129,105
February 21, 2021 to March 27, 2021 42,882 285.47 — 129,105
Total 134,061 —
26, 2022.


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
					(in thousands)
December 26, 2021 to January 22, 2022	—	$	—	—	$	129,105
January 23, 2022 to February 19, 2022	84,127	312.35		—	129,105
February 20, 2022 to March 26, 2022	26,720	291.68		—	129,105
Total	110,847			—

Our Board of Directors have authorized up to an aggregate amount of $1.3 billion for our stock repurchase program. During the three months ended March ~~27, 2021,~~26, 2022, we did not repurchase any shares of common stock under our stock repurchase program or in open market trading. As of March ~~27, 2021,~~26, 2022, we had $129.1 million remaining on the authorized stock repurchase program.

Additionally, our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements.

4334

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Item 6. Exhibits


(a) Exhibits			Description of Exhibits
10.1* 10.1+			~~Agreement~~Employment Offer Letter between ~~David Ross Smith and Charles River Discovery Research Services UK Limited effective December 1, 2020~~
10.2*			~~Executive Incentive Compensation Program effective January 1, 2021~~
10.3*			Charles River Laboratories, ~~amended~~Inc. and ~~restated Deferred Compensation Plan,~~Flavia Pease, dated as ~~amended~~of March 4, 2022
31.1+			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2+			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1+			Certification of the Principal Executive Officer and the Principal Financial Officer required by Rule 13a-14(a) of 15d-14(a) of the Exchange Act
101.INS			eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Calculation Linkbase Document
101.DEF			XBRL Taxonomy Definition Linkbase Document
101.LAB			XBRL Taxonomy Label Linkbase Document
101.PRE			XBRL Taxonomy Presentation Linkbase Document

* Management contract or compensatory plan, contract or arrangement.
+ Furnished herein.

4435

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


						CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

			May 4, ~~2021~~2022			/s/ JAMES C. FOSTER
						James C. Foster Chairman, President and Chief Executive Officer

			May 4, ~~2021~~2022			/s/ DAVID R. SMITH
						David R. Smith Corporate Executive Vice President and Chief Financial Officer

4536


			Adjustments to Goodwill
	December 26, 2020		Acquisitions		Foreign Exchange		March 27, 2021
	(in thousands)
RMS	$	287,759	$	0	$	(169)	$	287,590
DSA	1,378,130		88,611		(7,726)		1,459,015
Manufacturing	143,279		0		746		144,025
Goodwill	$	1,809,168	$	88,611	$	(7,149)	$	1,890,630


	Principal
	(in thousands)
2021 (excluding the three months ended March 27, 2021)	$	109
2022	0
2023	0
2024	260
2025	0
Thereafter	2,194,135
Total	$	2,194,504


	March 27, 2021				March 28, 2020
Location of gain (loss)	Financial statement caption amount		Amount of gain (loss)		Financial statement caption amount		Amount of gain (loss)
	(in thousands)
Three Months Ended:
Interest expense	$	(29,719)	$	13,977	$	(15,067)	$	6,067


	As of		As of
	March 27, 2021		March 28, 2020
Weighted-average remaining lease term (in years)
Operating lease	8.7		8.4
Finance lease	12.4		12.7
Weighted-average discount rate
Operating lease	3.9	%	4.2	%
Finance lease	4.5	%	4.5	%


	Operating Leases		Finance Leases
	(in thousands)
2021 (excluding the three months ended March 27, 2021)	$	24,996	$	3,078
2022	30,659		3,738
2023	28,248		3,411
2024	27,113		3,181
2025	24,635		2,902
Thereafter	101,665		21,597
Total minimum future lease payments	237,316		37,907
Less: Imputed interest	38,433		9,063
Total lease liabilities	$	198,883	$	28,844